Faulk Industries (FI) produces low cost digital cameras that sell for $100. FI requires a 25% return on sales. Currently feasible costs are $5,160,000 and a cost reduction of $660,000 is required to meet their target. FI assumes they will sell ____ cameras.
A) 60,000
B) 75,000
C) 85,000
D) None of the above

Question

Quizplus · Accepted Answer

FI requires a 25% return on sales, which means that the profit should be 25% of the sales revenue. The sales revenue is $100 per camera, so the profit per camera should be $25. The cost per camera is currently $5,160,000 / 60,000 = $86. To meet the target return on sales, the cost per camera must be reduced by $660,000 / 60,000 = $11. Therefore, the new cost per camera will be $86 - $11 = $75. The number of cameras that FI will sell is 5,160,000 / 75 = 68,800.

Faulk Industries (FI) Produces Low Cost Digital Cameras That Sell