22. A Company uses cost-plus pricing with a 50% mark-up. The company is currentl

Question

22.

A Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge?

A)

$13.50

B)

$14.55

C)

$12.75

D)

$10.95

22.

A Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge?

A)

$13.50

B)

$14.55

C)

$12.75

D)

$10.95

Explanation / Answer

C) $12.75 Statement showing computations Particulars Existing   Proposed No of units sold           100,000.00       80,000.00 Variable Cost per unit                        6.00                  6.00 Fixed Cost per unit Existing = 200,000/100,000 Proposed = 200,000/80,000                        2.00                  2.50 Total Cost per unit =VC + FC                        8.00                  8.50 Markup@50%                        4.00                  4.25 Price company should charge                     12.00               12.75

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