Question

Maize Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,071,300 units can be sold if the price is no more than $5. If Maize Water decides to produce the filters, it will need to invest $2,027,600 in new production equipment. Maize Water requires a minimum rate of return of 21% on all investments. Determine the target cost per unit for the filter. (Round answer to 2 decimal places, e.g. 10.50.) Target cost per unit $

Answer 1

Calculate target cost per unit

Target cost per unit = Selling price-Desired ROI per unit

= 5 - (2027600*21%/1071300)

Target cost per unit = 4.60 per unit