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Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic calculator that the company is developing cannot exceed $67. Shimada’s required rate of return is 28% on all investments. An investment of $3,100,000 would be required to purchase the equipment needed to produce the 42,000 calculators that management believes can be sold each year at the $67 price. Required: Compute the target cost of one calculator

Respuesta :

TomShelby

Answer:

52.34

Explanation:

[tex]target \: cost = sales \ price \div (1+return)\\67 \div (1+.28) = 52.344375 = 52.34[/tex]

The target cost should be unit cost which satisfies the expected return.

In this case, if unit cost is higher than 52.34 the return will be lower than 28%

This is the number Shimada will engage the calculator project. If the unit cost doesn't get to this level through development and investing in a certai dead-lines, the projec will be discontinued.

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