Question - SmartCOM, Inc. manufactures a chip that can turn a cellphone into a wireless access point. A wireless access point allows the phone to act as a wireless modem. The company is working with a cellphone manufacturer who is thinking of bundling the SmartCOM chip as a standard component. SmartCOM's marketing manager has determined that phone buyers would be willing to pay $110 for a wireless modem. The cost to the manufacturer of installing and testing the hardware and the software is $25. In addition, the cell phone manufacturer requires a 10 percent return on sales.
Assume that SmartCOM desires a profit margin of 15%. What is SmartCOM's target cost for the chip?
1. $93.50
2. $87.05
3. $62.90
4. $57.50