Send it into Orbit Golf Inventions is considering introducing a new high velocity long distance golf...
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Send it into Orbit Golf Inventions is considering introducing a new high velocity long distance golf ball. The company believes that if the golf balls can be priced competitively at $60 per box of 12, approximately 36,000 boxes can be sold. The CFO (Chief Financial Officer) has determined that an investment in new manufacturing equipment will be necessary. The cost of the new equipment to manufacture the balls will be $940,000. Send it in Orbit requires a minimum rate of return of 30% on all investments, therefore, if the company was to pursue this new golf ball market, their minimum return of 30% on all investments would mean that profit necessary from investing in the new equipment would be $940,000 x 30% = $282,000. Instructions 1. Base on the company's minimum rate of return of 30%, compute the target cost per box of balls. 2. What would the target cost per box be if the company were willing to accept a return of 25% instead of 30%? 3. What "qualitative" factors should the company consider in evaluating the above opportunity? Send it into Orbit Golf Inventions is considering introducing a new high velocity long distance golf ball. The company believes that if the golf balls can be priced competitively at $60 per box of 12, approximately 36,000 boxes can be sold. The CFO (Chief Financial Officer) has determined that an investment in new manufacturing equipment will be necessary. The cost of the new equipment to manufacture the balls will be $940,000. Send it in Orbit requires a minimum rate of return of 30% on all investments, therefore, if the company was to pursue this new golf ball market, their minimum return of 30% on all investments would mean that profit necessary from investing in the new equipment would be $940,000 x 30% = $282,000. Instructions 1. Base on the company's minimum rate of return of 30%, compute the target cost per box of balls. 2. What would the target cost per box be if the company were willing to accept a return of 25% instead of 30%? 3. What "qualitative" factors should the company consider in evaluating the above opportunity?
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Answer rating: 100% (QA)
SOLUTION 1 To compute the target cost per box of balls we need to determine the total cost that the company can incur while still achieving the requir... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
Posted Date:
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