Homework SourseShort Essay Chapter 8 Please upload or write your short ess
Solution
A.Following are the factors that affect the company’s desire of Return of Investment:
If a company is ready to take higher degree of risk than its expected rate of return will be high but if risk taking capacity is lower than return of investment will be less.
But if inflation rate is not high than even lesser rate of return will be fine since business require lesser finds to run business.
B. It is necessary for a company to understand its target cost and mark up percentage.
Target Cost is the cost that company is targeting to achieve for the production of its goods. And earn the required margin on the target cost.
Mark up percentage is the percentage of profit added to the total cost of the product to arrive at the sales price of the product.
Target Cost is comprised of the various cost which is required to produce the product. A company is required to reduce its total cost of the product to earn the maximum profit. So, it is necessary for a company to know all the components of the cost to understand what elements of the cost can be eliminated or reduced to get the target cost.
Here one point should be noted that at a company can not increase its sales price above a certain level due to the competition in the market . So, to achieve its profit it is necessary that a company should reduce its cost and it can only be done by knowing the different component of the cost.
Further, various techniques can be used to reduce the cost once we know the component it is comprises of.
Mark up percentage of the company cannt be very high since it leads to the increase in sales price , which if more than the industry average will not be good for the company
So, it is necessary for a company to understand its target cost and margin to survive in the industry.
