Shirt Company is considering adding a new product line, a cloth shopping bag with custom screen printing that will be sold to grocery stores. If the current market price of cloth shopping bags is $2.25 and the company desires a net profit of 60 %, what is the target cost? The company estimates the full product cost of the cloth bags will be $ 0.80. Should the company manufacture the cloth bags? Why or why not?

Instructions are below.

Explanation:

Giving the following information:

The current market price of cloth shopping bags is $2.25

Target profit = 60%

First, we need to calculate the cost per unit to reach the target cost.

Target cost = selling price * (1-targert profit)

Target cost = 2.25*0.4 = $0.9

Now, if $0.8 is the unitary total cost:

Cost = (0.8*100) / 2.25 = 35.5%

Profit = 100 - 35.5 = 64.5%

The company should manufacture the product because it reaches the target profit per unit.