Well Water Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The following data has been collected: $$\begin{array} { l c }
\text { Annual sales } & 50,000 \text { bottles } \
\text { Projected selling and administrative costs } & \$ 8,000 \
\text { Desired profit } & \$ 70,000
\end{array}$$ The target cost per bottle is

Question

Well Water Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The following data has been collected: $$\begin{array} { l c } 
\text { Annual sales } & 50,000 \text { bottles } \
\text { Projected selling and administrative costs } & \$ 8,000 \
\text { Desired profit } & \$ 70,000
\end{array}$$ The target cost per bottle is

Quizplus · Accepted Answer

To find the target cost per bottle, first calculate the total revenue by multiplying the sales price per bottle by the annual sales volume: $2.00 * 50,000 = $100,000. Then, subtract the desired profit and the projected selling and administrative costs from the total revenue: $100,000 - $70,000 - $8,000 = $22,000. Finally, divide this amount by the annual sales volume to find the target cost per bottle: $22,000 / 50,000 = $0.44. However, since $0.44 is not an option that matches the calculation based on the provided choices and the correct approach, it seems there was a mistake in my explanation regarding the correct choice. The correct calculation for the target cost per bottle should involve determining the total costs needed to achieve the desired profit, which includes both the production costs and the selling and administrative costs, and then dividing by the number of units. Let's correct this:Total costs needed (including desired profit and selling/administrative costs): $70,000 (desired profit) + $8,000 (selling and administrative costs) = $78,000.Total revenue needed: $100,000 (from selling 50,000 bottles at $2 each).To find the target cost per bottle, subtract the total costs from the total revenue and then divide by the number of bottles: ($100,000 - $78,000) / 50,000 = $22,000 / 50,000 = $0.44.Given the options and the mistake in the initial explanation, the correct approach to find the target cost per bottle involves considering all relevant costs and revenues. The mistake was in the interpretation of the options and the calculation process. The correct calculation directly aligns with finding the cost that allows achieving the desired profit margin, given the selling price and the projected sales volume.

Well Water Inc The Target Cost Per Bottle Is A) $0

Well Water Inc The Target Cost Per Bottle Is
A) $0