Premo Pens, Inc., is in the process of developing a newpen to replace its existing top-of-the-line Executive Model.Market research has identified the critical features the pen must have, and it is estimated that customers would be will-ing to pay $30 for a pen with these features. Premo’s produc-tion manager estimates that with existing equipment it will cost $26 to produce the proposed model. The current Execu-tive Model sells for $24 and has a total production cost of $20. A competitor sells a pen similar to the proposed model,but without Premo’s patented easy retract feature, for $28. Itis estimated to cost the competitor $25 to produce. If Premoseeks to earn a 20 percent return on sales on the new model,which of the following represents the target cost for the newpen?a. $26.00.b. $22.40.c. $24.00.d. $19.80.
Premo Pens, Inc., is in the process of developing a new
pen to replace its existing top-of-the-line Executive Model.
must have, and it is estimated that customers would be will-
ing to pay $30 for a pen with these features. Premo’s produc-
tion manager estimates that with existing equipment it will
cost $26 to produce the proposed model. The current Execu-
tive Model sells for $24 and has a total production cost of
$20. A competitor sells a pen similar to the proposed model,
but without Premo’s patented easy retract feature, for $28. It
is estimated to cost the competitor $25 to produce. If Premo
seeks to earn a 20 percent return on sales on the new model,
which of the following represents the target cost for the new
pen?
a. $26.00.
b. $22.40.
c. $24.00.
d. $19.80.
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