Question
Mish-Mash Meow Ltd. produces cat treats. The company is in the process of making a new tuna-flavoured treat. The market for cat treats is competitive,
Mish-Mash Meow Ltd. produces cat treats. The company is in the process of making a new tuna-flavoured treat. The market for cat treats is competitive, so Mish-Mash Meow Ltd. wants to set the selling price of a case of treats at $25. The company's investment specific to the new treat is $1,500,000. It wants to earn a return of 15% on this investment. Annual fixed costs associated with the production and sale of the treats are $950,000.
The marketing manager expects the market for treats to be 2.5 million cases in the next year. The company would like to gain a 4% share of that market. The marketing manager has decided that this can only be achieved with a variable selling cost of $0.85 per case.
What is the target full cost needed for Mish-Mash Meow Ltd. to earn the required return?
a) $2,190,000
b) $2,275,000
c) $2,360,000
d) $3,225,000
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