3. Grasscutter Sdn. gives service to trim lawns. The firm fixed costs is RM100 0
ID: 1218860 • Letter: 3
Question
3. Grasscutter Sdn. gives service to trim lawns. The firm fixed costs is RM100 000 per year. Management expects to sell 2000 units per year and at that rate of output, be 000. The firm uses cost-plus pricing to earn a target rate TVC will 50 of return on its RM200 000 investment. lf the price is set at RM100, what is the target rate of return? 4. A small firm slaughters rabbit fir their fur and meat. The demand for rabbit's is given by: P 2 0.001Q and the demand for rabbit's meat is given by: P -1.60-0.001Q. The marginal cost of slaughtering and processing each rabbit is RM0.60. What are the profit-maximizing prices and quantities of rabbit's fur and meat?Explanation / Answer
Answer:
3. Given the information is:
The firm total fixed costs is: 100,000
The total variable cost is: 50,000
The management expected unit sale is: 2,000
First, we have to calculate the unit cost from TFC, TVC and unit sale. That is:
A Unit Cost = TVC + TFC/Expected Unit sale
= 50,000 + 100,000 /2,000
= 50,000 + 50
= 50,050 per unit
We knew the formula for Markup/Cost-Plus Pricing, that is:
Markup price = Unit cost + (Desired Returns*Invested Capital/Unit price)
If the price is set at RM100, then target rate of return(R) is:
100 = 50,050 + (R*200,000/2,000)
100 = 50,050 + 100R
R = 499.50
Therefore, the target rate of return is: RM 499.50
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