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17 July, 09:24

Shmotel Industries wants to build a new manufacturing plant. Their target ROI is 20% and the investment required to build the hotel is $1 million. They plan to produce 500 units in the first year. Unit variable cost is $200, and total fixed cost is $200,000. What is the price that should be charged

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  1. 17 July, 10:23
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    Price = $1,000

    Explanation:

    Price to be charged = (Production cost + Target return) / units

    Required target return - ROI * investment cost

    = 20% * 1,000,000 = $200,000

    Production cost = Variable cost + Fixed cost

    Production cost = (500 * 200) + 200,000 = 300000

    Total sales revenue to achieve a return = Production cost + target return

    = 300,000 + 200,000 = 500,000

    Selling price per unit = $500,000/500 units

    = $1,000
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