What is maximum amount the company would be willing to pay

Assignment Help Managerial Accounting

Reference no: EM13952795

Target Costing

Free Riders Inc. is considering adding a scooter to its motorcycle line-up. Management will negotiate the price of the scooter with its manufacturer.

Management of Free Riders believes the scooters can be sold to its customers for $4,000 each. At that price, annual sales of the scooters should be 200 units. If the scooters are added to Free Riders' product lines, the company will have to invest $200,000 in inventories and spe- cial warehouse fixtures. The variable cost of selling the scooters will be $1,000 per unit.

Required:

1. If Free Riders requires a 20% ROI, what is the maximum amount the company would be willing to pay the manufacturer for the scooters?

2. After many hours of negotiations, management has concluded that the manufacturer is unwilling to sell the scooters at a low enough price for Free Riders to earn its 20% required ROI. Apart from simply giving up on the idea of adding the scooters to Free Riders' product lines, what could management do?

Reference no: EM13952795

Questions Cloud

Differences between the types of evaluation : Your plan must demonstrate that you understand the following: The differences between the types of evaluation and Ethical considerations related to evaluation

Product innovation at gillette throughout its history : Evaluate product innovation at Gillette throughout its history. Has Gillette been a victim of its own success? Has product innovation in the wet-shaving market come to an end? Explain.

Effect of a minimum wage on the market : From an economic standpoint, evaluate the effect of a minimum wage on the market for low-wage labor. Include the following:

Calculate the target cost of one carbon fibre road bike : Little River Cycles (LRC) produces and distributes carbon fibre road bikes. Management is eager to take advantage of the growing market for these bikes. Calculate the target cost of one carbon fibre road bike.

What is maximum amount the company would be willing to pay : If Free Riders requires a 20% ROI, what is the maximum amount the company would be willing to pay the manufacturer for the scooters?

Description of the data objects that are managed by the s/w : Such as for server systems, operating systems and software environments. Suggestions: Enterprise x86 Servers with Microsoft Windows 2008 64-bit Operating systems, Multi-Processors, TCP/IP Networking, IIS7 ASP.Net 3.5 web application environment, M..

What happens to the interest rate, income, consumption : According to the IS-LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances? Support your answer with suitable diagrams.

What is meant by the term time value of money : What is meant by the term time value of money? What is meant by the term net present value? What is a post-audit? What are some benefits of conducting post-audits?

What is the government budget constraint : Set up the problem in an alternative, equivalent way where the govern- ment's budget constraint is modelled as a separate constraint in the La- grangean. What must be the value of the Lagrange multiplier on this con- straint at the optimum?

User Account

All Pages