Preferred Products, a bicycle manufacturer, uses normal volume as the basis for setting prices. That is, it
Question:
Preferred Products, a bicycle manufacturer, uses normal volume as the basis for setting prices. That is, it sets prices on the basis of long-term volume predictions and then adjusts these prices only for large changes in pay rates or material prices. You are given the following information:
Materials, wages, and other variable costs....$300 per unit
Fixed costs.................$200,000 per year
Target return on investment (ROI)......... 20%
Normal volume...............1,500 units per year
Investment (average total assets)........ $800,000
Required
1. What sales price is needed to attain the 20 percent target ROI?
2. What ROI rate will be earned at sales volumes of 2,000 and 1,000 units, respectively, using the sales price you determined in requirement 1?
Step by Step Answer:
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins