Sutton Products is a price - setter that uses the cost plus pricing approach. Th
ID: 2439316 • Letter: S
Question
Sutton Products is a price - setter that uses the cost plus pricing approach. The products are specialty vacuum tubes used in sound equipment. The CEO is certain that the company can produce and sell 320,000 units per year, due to the high demand for the product Variable costs are $2.30 per unit. Total fixed costs are 5970,000 per year. The CEO will receive stock options if $200,000 of operating income for the year is reported. What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to the nearest cent.) O A. $4.71 per unit OB. $2.30 per unit O C. $5.96 per unit O D. $3.66 per unitExplanation / Answer
Variable costs per unit = $2.30
Fixed Costs = $970,000
Operating Income = $200,000
Number of units sold = 320,000
Number of units sold = (Fixed Costs + Operating Income) / Contribution Margin per unit
320,000 = ($970,000 + $200,000) / Contribution Margin per unit
320,000 = $1,170,000 / Contribution Margin per unit
Contribution Margin per unit = $3.66
Contribution Margin per unit = Selling Price per unit - Variable costs per unit
$3.66 = Selling Price per unit - $2.30
Selling Price per unit = $5.96
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