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Swifty Corporation- Target Price

Swifty Corporation has gathered the following information concerning one model of shoe!

Variable manufacturing costs

$30000

Variable selling and administrative costs

$15000

Fixed manufacturing costs

$160000

Fixed selling and administrative costs

$120000

Investment

$1700000

ROI

30%

Planned production and sales

5000 pairs

What is the target selling price per pair of shoes?

a) $167

b) $158

c) $111

d) $140

Answer

a) $167

Explanation:

Total Cost = $30,000 + $15,000 + $160,000 + $120,000 = $325,000

ROI = $1,700,000 x 30% = $510,000

Target Price = (Total Cost + ROI)/Total Units = ($325,000 + $510,000)/5,000 =$167

Swifty Corporation has gathered data has been explained as following:

  1. Variable Manufacturing Costs: These are the costs that directly increase with the production of each pair of shoes. For this model, the variable manufacturing cost is $30,000.
  2. Variable Selling and Administrative Costs: These are costs associated with selling and administrative activities that vary with the number of pairs sold. In this case, the variable selling and administrative costs amount to $15,000.
  3. Fixed Manufacturing Costs: Fixed costs remain constant regardless of the number of units produced. The fixed manufacturing cost for this model is $160,000.
  4. Fixed Selling and Administrative Costs: Similar to fixed manufacturing costs, these are costs that do not change with the number of units sold. The fixed selling and administrative costs are $120,000.
  5. Investment: This refers to the initial investment made by Swifty Corporation to develop and produce this model of shoes. The investment amount is $1,700,000.
  6. ROI (Return on Investment): ROI is a measure of profitability, calculated by taking the net profit (which includes the ROI itself) and dividing it by the initial investment. In this case, the desired ROI is 30%, and therefore, the calculated ROI amount is $510,000 ($1,700,000 * 0.30).
  7. Planned Production and Sales: Swifty Corporation plans to produce and sell 5,000 pairs of shoes.

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