Gator Sports Inc. needs to decide on the price to charge for their 10,000 new football shirts they are producing for the fall. Their total variable cost is $100,000 and their total fixed cost is $100,000. Gator Sports Inc. invested $2 million in specialized equipment, and their target ROI is 20%. Using target ROI pricing, what should the selling price be?

Question

Business

Kamari Cross

22 September, 22:24

Gator Sports Inc. needs to decide on the price to charge for their 10,000 new football shirts they are producing for the fall. Their total variable cost is $100,000 and their total fixed cost is $100,000. Gator Sports Inc. invested $2 million in specialized equipment, and their target ROI is 20%. Using target ROI pricing, what should the selling price be?

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Lorena Munoz · Answer 1

The selling price should be $60

Explanation:

ROI = Profit / Investment

↔ 20% = Profit / 2,000,000

→ Profit = 20% * 2,000,000 = $400,000

Profit = Sales - cost

↔ 400,000 = Selling price * 10,000 units - (variable cost of $100,000 + Fixed cost of $100,000)

↔ 400,000 = Selling price * 10,000 - 200,000

→ Selling price = 600,000/10,000 = $60