A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.
A) $18.10
B) $18.23
C) $20.25
D) $20.70
E) $25.50

Question

Quizplus · Accepted Answer

First, we need to calculate how much profit the manufacturer wants to earn in the first year:

ROI = (Profit / Investment) x 100
0.15 = (Profit / $750,000) x 100
Profit = 0.15 x $750,000
Profit = $112,500

Next, we need to calculate the total cost of producing 50,000 units:

Total Cost = Cost per Unit x Number of Units
Total Cost = $18 x 50,000
Total Cost = $900,000

Now, we can calculate the target price per unit:

Target Price = (Total Cost + Desired Profit) / Number of Units
Target Price = ($900,000 + $112,500) / 50,000
Target Price = $20.25

Therefore, the company's target-return price for this product is $20.25, which is option C.

A Manufacturer Has Invested $750,000 in a New Product and Wants