Smith Automotive is a company that produces component parts for automobile engines. They have a product that is new to the OEM market (the Original Equipment Manufacturer market has no intermediaries) and are trying to determine an appropriate price. Smith Automotive has an available production capacity of two million units per year, a cost per unit of $5.00 at that level of capacity and fixed manufacturing expenses of $5 million per year.
If Smith Automotive wants to achieve a 30% profit, calculate the lowest price at which Smith Automotive could sell this product and still achieve this profit objective. Show your work.
a) $1.07 per unit
b) $10.00 per unit
c) $10.70 per unit
d) $11.50 per unit
e) $25 per unit