#2 Please give the answer in the format provided. Eastern Auto Supply, Inc., pro
ID: 2456495 • Letter: #
Question
#2 Please give the answer in the format provided.
Eastern Auto Supply, Inc., produces and distributes auto supplies. The company is anxious to enter the rapidly growing market for long-life batteries that is based on lithium technology. Management believes the to be fully competitive, the price of the new battery that the company is developing cannot exceed $71. At this price, management is confident that the company can sell 41,000 batteries per year. The batteries would require an investment of $2,900,000, and the desired ROI is 20%. Required Compute the target cost of one battery. {Do not round intermediate calculations.)Explanation / Answer
Given data,
Maximun Selling Price = $71
Expected batteries to be sold = 41000
Investment = $2900000
Desired ROI = 20%
Computation of Target cost of one battery:
Sales = 41000 * 71 = $2911000
Less: Desired Profit = 2900000 * 20% = $580000
Target Cost for 41000 batteries = 2911000-580000 = $2331000
Target Cost per battery = $2331000 / 41000 = $56.85
Target Cost per battery = $56.85
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