hapter 8 Pricing and Other Product Management Decisions 18-18. Product Pricing:

Question

hapter 8 Pricing and Other Product Management Decisions 18-18. Product Pricing: Single Product Assume that you plan to open a soft ice cream franchise in a resort community during the sumime months. Fixed operating costs for the three-month period are projected to be $9,080. Variable costs per serving include the cost of the ice cream and cone, $0.75, and a franchise fee payable to Austrian lce AG, $0.23. A market analysis prepared by Austrian Ice indicates that summer sales in the resort com- munity should total 24,000 units. Required Determine the price you should charge for each ice cream cone to achieve a $25,000 profit for the three-month period.

Explanation / Answer

Answer: The price to be charged for each ice-cream to achieve a $25,000 profit is as follows: Fixed operating cost $                9,080.00 Add: Variable cost $              18,000.00 ($0.75* 24,000) Franchise fee payable $                5,520.00 ($0.23* 24,000) Total cost $              32,600.00 Add: Required profit $              23,000.00 Sales target $              55,600.00 Number of units sold $              24,000.00 Sale price per unit $                        2.32 ($55,600/24,000 units)

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