19. House balls believes it can sell 3,500,000 of a new vehicle charger for $8 e

Question

19.

House balls believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs associated with the charger. If the company desires to make a profit of $2,000,000 on the charger, what is the target variable cost per charger?

A)

$7.25

B)

$9.00

C)

$6.57

D)

$9.40

19.

House balls believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs associated with the charger. If the company desires to make a profit of $2,000,000 on the charger, what is the target variable cost per charger?

A)

$7.25

B)

$9.00

C)

$6.57

D)

$9.40

Explanation / Answer

Fixed cost = 3,000,000

Desired Profit = 2,000,000

Desired Contribution = Fixed Cost + Desired Profit

= 3,000,000 + 2,000,000

=$5,000,000       

..

Let the target Variable cost be x

Therefore , Contribution per unit = (8-x)

..

3500,000 = 5,000,000/(8-x)

8-x = 1.43

X = 6.57

...

Therefore answer is Option-C)$6.57

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