Tai P.
asked • 12/17/22Economic Question: Finding Price per part given MARR, material cost and initial cost
After graduation you open an injection molding fabrication shop. You are contacted by a potential customer for a quote to produce a part for them. They want 50,000 parts/year for 5 years. You estimate that making the mold will cost $60,000. Additionally, you estimate that labor and materials costs will be $20,000 per year. If you have a MARR of 12%, what is the minimum price per part you should quote your potential customer to achieve your MARR?
Any help would be appreciated! Thank you!
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1 Expert Answer
If your minimum acceptable rate of return (MARR) is 12%, the total order is for 250,000 parts, the cost of the mold is $60,000 or $6 per 25 parts, and the labor and materials are $10 for every 25 parts made ($20,000/year ÷ 50,000parts/year), the total cost of production is $16 ÷ 25 = $0.64 per part.
Multiply by 1.12 to find the minimum price you should charge --> $0.64*1.12 = $0.72 per part.
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Christopher F.
To calculate the minimum price per part you should quote your potential customer to achieve your MARR of 12%, you need to take into account the upfront cost of making the mold and the annual labor and materials costs. First, you need to determine the total cost of the project by adding the upfront cost of the mold to the labor and materials costs for all 5 years of the project: Total cost = $60,000 + (5 years * $20,000/year) Total cost = $60,000 + $100,000 Total cost = $160,000 Next, you need to determine the total amount of revenue you need to generate to achieve your MARR. To do this, you can use the following formula: Total revenue = Total cost / (1 - MARR) Total revenue = $160,000 / (1 - 0.12) Total revenue = $181,818.18 Finally, you can divide the total revenue by the number of parts to determine the minimum price per part you should quote your potential customer: Price per part = Total revenue / Number of parts Price per part = $181,818.18 / 50,000 parts Price per part = $3.64 Therefore, to achieve your MARR of 12%, you should quote a minimum price per part of $3.64 to your potential customer.12/29/22