Reference no: EM132712365

Assume Champion Power Equipment wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 7,500 log-splitting machines per year at a retail price of $1,200 each. An independent catalog company would handle sales for an annual fee of $12,000 plus $75 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $200 per unit.

Problem 1: If company management desires a return equal to 30% of the final selling price, what is the target conversion and administrative cost per unit? Hint: The target unit cost will only or should only include conversion costs and remaining or additional sales and administrative costs.