Essay
Airflow Company sells a product in a competitive marketplace. Market analysis indicates that the product would probably sell at $28.00 per unit. Airflow management desires a profit equal to a 20% rate of return on invested assets of $1,400,000. Airflow anticipates selling 50,000 units. The current full cost per unit for the product is $25.00 per unit.
(a) What is the amount of profit per unit?
(b) What is the target cost per unit if Airflow meets the market dictated price and management's desired profit?
Correct Answer:
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(a) $28.00 - $25.00 = $3.00
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