On Point, Inc., is interested in producing and selling a deluxe electric pencil

Question

On Point, Inc., is interested in producing and selling a deluxe electric pencil sharpener. Market research indicates that customers are willing to pay $40 for such a sharpener and that 20,000 units could be sold each year at this price. The cost to produce the sharpener is currently estimated to be $34. a. If On Point requires a 23 percent return on sales to undertake production of a product, what is the target cost for the new pencil sharpener?(Round your answers to 2 decimal places. Omit the "$" sign in your response.) Target cost $ b. If a competitor sells basically the same sharpener for $36, what would On Point's target cost be to maintain a 23 percent return on sales?(Round your answers to 2 decimal places. Omit the "$" sign in your response.) Target cost $

Explanation / Answer

b. If we want to sell our sharpener at the same price as our competitor while still maintaining a 16% return on sales, we would have to find a supplier that will sell us the sharpener for $30.24 x/36 = .16 x = 5.76 profit 36 sales price - 5.76 = 30.24 target cost

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