Question

Eckert Company is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure rs to have a very large potential market. Because of competition, Eckert does not believe that it can charge more than $93 for LittleLaser. At this price, Eckert believes it can sell 109,000 of these laser guns. Eckert will require an investment of $10,355,000 to manufacture, and the company wants an ROI of 20%. Determine the target cost for one LittleLaser. Target costs

Answer 1

Solution

Eckert Company

Determination of the target cost:

Target cost = maximum price per unit – return on investment per unit

Return on investment = $10,355,000 x 20% = $2,071,000

Expected units = 109,000 laser guns

Return on investment per unit = $2,071,000/109,000 = $19

Maximum price per unit = $93

Target cost = maximum price – return on investment per unit

= $93 - $19 = $74

Hence, the target cost per unit - $74