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 $15. Shimada’s required rate of return is 12% on all investments. An investment of $8,800,000 would be required to purchase the equipment needed to produce the 480,000 calculators that management believes can be sold each year at the $15 price.

Required:

Compute the target cost of one calculator. (Round your answer to 2 decimal places.)

Explanation / Answer

Investment = $8800000

Rate of return = 12%

Return on investment = 8800000*12% = $1056000

Profit pet unit = 1056000/480000 = $2.20 per unit

Target cost per unit = Price - Profit

= 15 - 2.20

= $12.80

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