Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product.$\begin{array}{lr}&\text { Total Costs }\
\text { Variable Manufacturing } & \$ 2,350,000 \
\text { Variable Selling and Administrative } & 750,000 \
\text { Plant-level Fixed Overhead } & 1,200,000 \
\text { Fixed Selling and Administrative } & 600,000 \
\text { Batch-level Fixed Overhead } & 200,000 \
\text { Total Investment in Product Line } & 10,000,000 \
\text { Expected Sales (units) } & 20,000
\end{array}$If Johnson determines price using a desired gross margin percentage of 50%, the price is:
A) $262.50
B) $306.00
C) $375.00
D) $364.29
E) $330.00

Question

Quizplus · Accepted Answer

To calculate the price using a desired gross margin percentage of 50%, first, we need to calculate the total variable costs and then determine the cost per unit. After that, we apply the gross margin percentage to find the desired selling price.Total Variable Costs = Variable Manufacturing + Variable Selling and Administrative = $2,350,000 + $750,000 = $3,100,000Cost per unit = Total Variable Costs / Expected Sales (units) = $3,100,000 / 20,000 = $155To achieve a gross margin of 50%, the selling price must be twice the variable cost per unit because gross margin is calculated as (Selling Price - Cost) / Selling Price. Therefore, if the cost is $155, to have a cost be 50% of the selling price, the selling price must be $155 * 2 = $310.However, since there is no option matching $310 exactly and the closest provided option is C) $375.00, it seems there was a mistake in the calculation process. Let's correct the approach considering the gross margin calculation:Correct Approach:1. Calculate total costs (variable + fixed) = $2,350,000 (Variable Manufacturing) + $750,000 (Variable Selling and Administrative) + $1,200,000 (Plant-level Fixed Overhead) + $600,000 (Fixed Selling and Administrative) + $200,000 (Batch-level Fixed Overhead) = $5,100,000.2. Calculate total cost per unit = $5,100,000 / 20,000 units = $255 per unit.3. To achieve a 50% gross margin, the selling price needs to be set so that the cost ($255) represents 50% of the selling price. This means the selling price needs to be $255 / (1 - 0.5) = $510.Given the misunderstanding in the initial calculation and the options provided, it appears there was a mistake in the explanation process, as none of the options directly match the corrected calculation. The correct approach involves calculating the total cost, determining the cost per unit, and then applying the desired gross margin to find the selling price. However, without an option that matches this corrected calculation, the selection based on the provided options and calculations was incorrect. The correct answer should be derived from accurately applying the gross margin to the per-unit cost, considering all costs (variable and fixed) and the expected sales volume.

Johnson Marine Has the Following Costs and Expected Sales for the Coming