Free Riders Inc is considering adding a scooter to its motor

Free Riders Inc. is considering adding a scooter to its motorcycle line-up. Management will negotiate the price of the scooter with its manufacturer Management of Free Riders believes the scooters can be sold to its customers for $4,000 each. At that price, annual sales of the scooters should be 200 units. If the scooters are added to Free Riders product lines, the company will have to invest $200,000 in inventories and special warehouse fixtures. The variable cost of selling the scooters will be $1,000 per unit Required.: I. If Free Riders requires a 20%RO what is the maximum amount the company would be willing to pay the manufacturer for the scooters? Maximum amount

Solution

1 Sales price 4000 Less: Variable cost 1000 Less: Profit per unit 200 =(200000*20%)/200 Maximum amount 2800