Q1. Paulo Sanchez feels that there is a market niche for software that helps entrepreneurs file for a patent. Surveying the features and prices of legal forms already in the market, the Paulo believes that a price of $150 would be about right for such software. At that price, he estimates that 1,000 copies could be sold each year. To design, develop, produce and service this software, an investment of $400,000 would be required. Paulo desires a 15% return on his investment (ROI).
Given these data, the target cost to create, sell, and service the software is:
$150
$60
$90
$40
Q2. The New Product Development Team at Mattel Inc. has developed a new version of the Barbie doll for the upcoming holiday season - "Holiday Barbie". Their market research suggests that they can sell approximately 500,000 units of Holiday Barbie at a price of $13.50/unit to retail stores. The variable production costs are $4.50/unit and total fixed costs are expected to be $3,600,000. In order for the new design to enter production, the target profit on the new doll must equal 30% each year on Mattel's capital investment. The total required investment is $3,600,000.
How many units will Mattel Inc. have to sell to ensure a 30% return on capital to the company?
540,000 units
520,000 units
120,000 units
Some other number.
Cannot be computed from information provided.
Q3. The New Product Development Team at Mattel Inc. has developed a new version of the Barbie doll for the upcoming holiday season - "Holiday Barbie". Their market research suggests that they can sell approximately 500,000 units of Holiday Barbie at a price of $13.50/unit to retail stores. The variable production costs are $4.50/unit and total fixed costs are expected to be $3,600,000. In order for the new design to enter production, the target profit on the new doll must equal 30% each year on Mattel's capital investment. The total required investment is $3,600,000.
If the number of units sold and selling price per unit cannot be increased beyond the current projection, to what level does variable cost per unit (currently $4.50) need to be reduced in order to ensure the 30% return on capital? (Ignore minor rounding.)
$0.36
$4.14
$3.84
Some other number.
Cannot be computed from information provided.
Q4. 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?
$93.50
$87.05
$62.90
$57.50