Question

Mira Mesa Appliances makes and sells kitchen equipment for offices and hotel rooms. Mira Mesa management believes that a new model of refrigerator made out of a synthetic material would sell well at a price of $260 per unit. Labor costs are estimated at $32 per unit and overhead costs would be $24 per unit. The major uncertainty is the price of the synthetic material. Mira Mesa is in negotiations with several suppliers for the material. Because of the risk associated with the new product, Mira Mesa will only proceed if the estimated return is at least 30 percent of the selling price.

Required:

What is the most Mira Mesa can pay for the synthetic material per unit (refrigerator) and meet its profitability goal? (Do not round intermediate calculations.)

Highest material price per unit= _________

Answer 1

Ans:Maximum Mira can pay for Synthetic material per unit =$126

Explanation:

Particulars	Amount
1.Selling price per unit	260.00
2.Less: desired return =260*30%	(78.00)
3.Less: Labor costs	(32.00)
4.Less: Overhead costs	(24.00)
Maximum Mira can pay for Synthetic material per unit (1-2-3-4)	126.00

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