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Gator Sports Inc. needs to decide on the price to charge for their 10,000 new football shirts they are producing for the fall. Their total variable cost is $100,000 and their total fixed cost is $100,000. Gator Sports Inc. invested $2 million in specialized equipment, and their target ROI is 20%. Using target ROI pricing, what should the selling price be?

Answer :

truonghanhduyen

Answer:

The selling price should be $60

Explanation:

ROI = Profit/ Investment

↔ 20% = Profit/ 2,000,000

→ Profit = 20% * 2,000,000 = $400,000

Profit = Sales – cost

↔ 400,000 = Selling price * 10,000 units – (variable cost of $100,000 + Fixed cost of $100,000)

↔ 400,000 = Selling price * 10,000 – 200,000

→ Selling price = 600,000/10,000 = $60

The selling price is $60.

Based on the information given, the first thing to do is to calculate the profit. This will be:

Profit = ROI × Investment

Profit = 20% × $2,000,000

Profit = $400,000

The selling price will then be:

400000 = (x × 10000) - 200000

400000 = 10000x - 200000

10000x = 400000 + 200000.

10000x = 600000.

x = 600000 / 10000

x = 60

The selling price is $60.

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