BBM's managers are attempting to build a new product, a better mousetrap. They began by determining the features customers wanted and what they would pay for those features. BBM's engineers then reverse-engineered a competitor's product to understand its design and related production processes. Their analysis indicated that customers would pay $10.00 for a better mousetrap. If BBM's required profit margin is 25%, the target cost of a better mousetrap is:
A) $2.50
B) $7.50
C) $12.50
D) None of the above

Question

Quizplus · Accepted Answer

BBM's required profit margin is 25%, which means the company wants to make a profit of 25% on the selling price of the product. If customers are willing to pay $10.00 for the product, then BBM can sell the product at a price of $10.00 and make a profit of 25% of $10.00, which is $2.50. Therefore, the target cost of the product would be $10.00 - $2.50 = $7.50. Hence, the correct answer is option B.

BBM's Managers Are Attempting to Build a New Product, a Better