Diamond Machine Technology makes a tool for sharpening the blades of pruning sheers and grass clippers. The company has invested $250,000 in developing this sharpener. This tool, which is about the size of a piece of chewing gum, costs $3.00 to make. Fixed costs for the sharpener amount to $10,000. The company expects to sell 100,000 sharpeners this year. Diamond machine’s markup on sales is 30percent, and it wants to earn a 20 percent ROI.
Calculate its markup price and its target-return price as well as its breakeven volume at both prices. Which price should Diamond Manufacturing use?