Oregon Equipment Company wants to develop a new log-splitting machine for rural

Question

Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 5,000 log-splitting machines per year at a retail price of $600 each. An independent catalog company would handle sales for an annual fee of $3,000 plus $70 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $50 per unit.

If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent. $

Explanation / Answer

Target conversion and administrative cost per unit = Retail Price - Total Annual fee per unit - raw material cost per unit - Desired Return

Target conversion and administrative cost per unit = 600 - (3000 + 70*5000)/5000 - 50 - 600*10%

Target conversion and administrative cost per unit = $ 419.40

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