Conquest,Inc.produces a special kind of light-weight,recreational vehicle that has a unique design.It allows the company to follow a cost-plus pricing strategy.It has $9,000,000 of average assets,and the desired profit is a 10% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | l | l | }
\hline \text { Sales volume } & 1000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed costs } & \$ 3,500,000 & \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Question

Conquest,Inc.produces a special kind of light-weight,recreational vehicle that has a unique design.It allows the company to follow a cost-plus pricing strategy.It has $9,000,000 of average assets,and the desired profit is a 10% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | l | l | } 
\hline \text { Sales volume } & 1000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed costs } & \$ 3,500,000 & \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Quizplus · Accepted Answer

The desired profit is 10% of $9,000,000, which is $900,000. Total costs are $3,500,000 (fixed) + $1,000,000 (variable for 1000 units), totaling $4,500,000. Adding the desired profit gives $5,400,000. Dividing by 1000 units gives a price of $5,400 per unit.

Conquest,Inc Using the Cost-Plus Pricing Approach,what Should Be the Sales Price