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Concord Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,000,000 units can be sold if the price is no more than $3. If Concord Water decides to produce the filters, it will need to invest $2,000,000 in new production equipment. Concord Water requires a minimum rate of return of 18% on all investments. Determine the target cost per unit for the filter.

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Kolawole845

Answer:

Target cost per unit= $2.64

Explanation:

The target cost is arrived at by subtracting the a desired profit margin from a competitive selling price.

The target cost per unit =

 ((selling price × qty) - (cost of capital(%) × initial cost))/No of units

=( (3× 1,000,000) - (18%×2,000,000) )/ 1,000,000

=  2.64  

Target cost per unit= $2.64

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