Clear Water is considering introducing a water filtration device
for its one-litre water bottles. Market research indicates that
1,000,000 units can be sold if the price is no more than $3. If
Clear Water decides to produce the filters, it will need to invest
$2,200,000 in new production equipment. Clear Water requires a
minimum rate of return of 20% on all investments.
Determine the target cost per unit for the
filter.
Target cost per unit = $_______
Rate of return = $2,200,000 X 20% = $440,000
Rate of return per unit = $440,000 / 1,000,000 = $0.44
Selling price per unit = $3
Cost per units = $3 - $0.44 = $2.56
Clear Water is considering introducing a water filtration device for its one-litre water bottles