D & P Equipment Company has designed and patented a new golf putter called the "Curve," which features a convex face. This design makes it virtually impossible to incorrectly strike a putt resulting in a pull to the left or push to the right. D & P's competitive analysis suggests that it will have to sell the putter at a target price of $110. The company currently estimates raw material costs will be $40, direct labor $20, and that overhead will amount to 1.5 times direct labor cost.
Required:
a. Assuming that D & P Equipment Company requires a profit of 25%, what is its target cost for the "Curve"?
b. What current cost gap exists at present?

Question

D & P Equipment Company has designed and patented a new golf putter called the "Curve," which features a convex face. This design makes it virtually impossible to incorrectly strike a putt resulting in a pull to the left or push to the right. D & P's competitive analysis suggests that it will have to sell the putter at a target price of $110. The company currently estimates raw material costs will be $40, direct labor $20, and that overhead will amount to 1.5 times direct labor cost. 
Required:
a. Assuming that D & P Equipment Company requires a profit of 25%, what is its target cost for the "Curve"?
b. What current cost gap exists at present?

Quizplus · Accepted Answer

The Answer of D & P Equipment Company has designed and patented a new golf putter called the "Curve," which features a convex face. This design makes it virtually impossible to incorrectly strike a putt resulting in a pull to the left or push to the right. D & P's competitive analysis suggests that it will have to sell the putter at a target price of $110. The company currently estimates raw material costs will be $40, direct labor $20, and that overhead will amount to 1.5 times direct labor cost. 
Required:
a. Assuming that D & P Equipment Company requires a profit of 25%, what is its target cost for the "Curve"?
b. What current cost gap exists at present?

D & P Equipment Company Has Designed and Patented a New