E8-2 Eckert Company is involved in producing and selling high-end golf equipment.

E8-2 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, called LittleLaser, appears to have a very large potential market. Because of competition, Eckert does not believe that it can charge more than $90 for LittleLaser. At this price, Eckert believes it can sell 100,000 of these laser guns. Eckert will require an investment of $8,000,000 to manufacture, and the company wants an ROI of 20%.

Instructions

a.    Determine the target cost for one LittleLaser.

Investment       x         ROI Percentage =         Return on Investment

$8,000,000        x         20%                =         $1,600,000

1,600,000 / 100,000                               =         $16 per unit

Market Price                 -          Desired Profit   =         Target cost