Management of Thebeau, Inc., is considering a new product that would have a selling price of $72 per unit and projected sales of 40,000 units. The new product would require an investment of $600,000. The desired return on investment is 19%.Required:Determine the target cost per unit for the new product.
What will be an ideal response?
| Projected sales (40,000 units × $72 per unit) | $ | 2,880,000 |
| Less desired profit (19% × $600,000) | 114,000 | |
| Target cost for 40,000 units | $ | 2,766,000 |
? | ||
| Target cost per unit ($2,766,000 ÷ 40,000 units) = $69.15 per unit | ||
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