Question

a. Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $450 as opposed to the current market price charged of $580 per unit. Granite City Products Inc. has decided to revise its sales price to $450. The annual sales target volume of the product after price revision is 300 units. Granite City Products Inc. wants to earn 30% on its sales amount. What is the target cost per unit? b. A company's invested capital is $15,000,000 and management has determined that the target rate of return on investment is 10%. Last year, the company produced 125,000 units and this year expects its unit sales to be 12% above last year. The cost of the product is estimated to be $13 per unit. What is the target operating income per unit? (Round any intermediary calculations to the nearest unit and your final answer to the nearest cent.) What selling price per unit will be required to earn the target operating income?

Answer 1

New selling price per unit = $450

Target cost = Selling Price-Desired Profit

= 450(1-30%) = $315

b.Invested Capital = $15,000,000

Desired Income = 15,000,000*10% = $1,500,000

Sales units = 125,000*1.12 = 140,000

Target Operating income per unit = 1,500,000/140,000

= $10.7143

Selling price per unit = Cost per unit + desired income

= 13+10.71

= $23.71