Exercise 8-2 Eckert Company is involved in producing and selling high-end golf e

Question

Exercise 8-2 Eckert Company is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, appears to have a very large potential market. Because of competition, Eckert does not believe that it can charge called LittleLaser, more than $93 for Littlelaser. At this price, Eckert believes it can sell 103,000 of these laser guns. Eckert will require an investment of $8,583,333 to manufacture, and the company wants an ROI of 18%. Determine the target cost for one LittleLaser. (Round answer to O decimal places, e.g. 10.) Target cost s

Explanation / Answer

The following formula may be used to determine return on investment:

Investment x ROI percentage = Return on investment

$8,583,333 x 18% = $1,545,000

Return on investment per unit is then $15 : ($1,545,000 ÷ 103,000)

The target cost is therefore computed as follows:

Target cost = Market Price - Desired profit

Target cost = $93 - $15 = $78

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