Reference no: EM132799914

Question - Create Company is an innovative manufacturer operating in Halifax, Nova Scotia. The owners of the company have recently started a new business in Sydney, Nova Scotia called Gener8. Gener8 has developed a new product for the Canadian market and intends to manufacture this product in its Cape Breton facility.

Management has estimated that the variable costs associated with the product are $80 per unit. Gener8 has estimated fixed costs at $4,000,000 for the year. Based on partially completed market research, Gener8 has estimated demand for its product at 100,000 units for the year. Generate is in the process of determining a sales price for its new product.

Required -

1. Calculate the sales price for the new product assuming:

a. Sales price is calculated based on Variable Cost plus an 80% mark-up.

b. Sales price is calculated based on Full Cost plus a 30% mark-up.

2. Calculate the operating income Gener8 would expect under each of the alternatives above.

3. Assume Create Company has invested a total of $15,000,000 to start Gener8 and established a required Return on Investment (ROI) of 20%. Calculate the sales price per unit that Gener8 will have to charge to meet the investor's requirements.

4. Assume you have chosen the sales price as calculated in Requirement 3 above. Actual sales for the year are 92,000 units and all expenses are the same as budget. Calculate the actual ROI for the year.