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Shirt Company is considering adding a new product​ line, a cloth shopping bag with custom screen printing that will be sold to grocery stores. If the current market price of cloth shopping bags is ​$2.25 and the company desires a net profit of 60​%, what is the target​ cost? The company estimates the full product cost of the cloth bags will be $ 0.80. Should the company manufacture the cloth​ bags? Why or why​ not?

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facundobuzzetti

Answer:

Instructions are below.

Explanation:

Giving the following information:

The current market price of cloth shopping bags is ​$2.25

Target profit= 60%

First, we need to calculate the cost per unit to reach the target cost.

Target cost= selling price*(1-targert profit)

Target cost= 2.25*0.4= $0.9

Now, if $0.8 is the unitary total cost:

Cost= (0.8*100)/2.25= 35.5%

Profit= 100 - 35.5= 64.5%

The company should manufacture the product because it reaches the target profit per unit.

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