Target Sales Price; Return On Investment (ROI) Preferred Products, a bicycle manufacturer, uses normal volume as the basis for setting prices. That is, it sets prices on the basis of long-term volume predictions and then adjusts these prices only for large changes in pay rates or material prices. You are given the following information:
Materials, wages, and other variable costs | $300 per unit |
Fixed costs | $200,000 per year |
Target return on investment (ROI) | 20% |
Normal volume | 1,500 units per year |
Investment (average total assets) | $800,000 |
Required
1. What sales price is needed to attain the 20 percent target ROI?
2. What ROI rate will be earned at sales volumes of 2,000 and 1,000 units, respectively, using the sales price you determined in requirement 1?
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