Shimada Products Corporation of Japan is anxious to enter the electronic calcula

Question

Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic calculator that the company is developing cannot exceed $67. Shimada's required rate of return is 29% on all investments. An investment of $3,400,000 would be required to purchase the equipment needed to produce the 49,000 calculators that management believes can be sold each year at the $67 price Required Compute the target cost of one calculator Sales Less desired profit Target cost for Target cost per unit units

Explanation / Answer

Target Return = Investment * Target return percentage

= $ 3400000 * 29%

= $ 986000

SALES = 49000 * 67 = $ 3283000

LESS:DESIRED PROFIT $ 986000

TARGET COST FOR 49000 UNITS = $ 2297000

TARGET COST PER UNIT = $ 46.88 (2297000 / 49000)

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