Phoenix Co. wanted to achieve a 20 percent return on an investment of $2 million during the coming year. Last year total costs for its product were $200,000, and 40,000 units were sold. The company expects to sell the same number of units in the coming year. Using target return pricing, what price should it charge for its product?
A) $5.
B) $10.
C) $15.
D) $20.
E) Cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

To achieve a 20% return on an investment of $2 million, Phoenix Co. needs to earn a profit of $400,000 ($2 million x 20%). Using the target return pricing formula, we can calculate the price as follows:

Price = (Total Costs + Desired Profit) / Units Sold
Price = ($200,000 + $400,000) / 40,000
Price = $15

Therefore, the company should charge $15 for its product to achieve a 20% return on its investment.