Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic calculator that the company is developing cannot exceed $15. Shimada’s required rate of return is 12% on all investments. An investment of $5,000,000 would be required to purchase the equipment needed to produce the 300,000 calculators that management believes can be sold each year at the $15 price. Required: Compute the target cost of one calculator.

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.