Drill Quest,Inc.manufactures drill bits for the oil industry.Drill Quest uses cost-plus pricing to set the price of its bits.Currently Drill Quest applies a 50 percent markup on average total cost.Average variable cost of producing bits is constant and equal to $6,000 per bit.Total fixed cost at Drill Quest is $550,000.DrillQuest currently produces 690 bits.Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits): $Q = 1,200 - 0.05 P$ Using cost-plus pricing,Drill Quest prices its bits at $______________ per bit.

Question

Quizplus · Accepted Answer

Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. Drill Quest currently produces 690 bits. So, the average total cost is:ATC = AVC + AFC/Q= $6,000 + $550,000/690= $6,797.10Therefore, the price of bits using cost-plus pricing is:Price = ATC x (1 + markup percentage)= $6,797.10 x (1 + 0.50)= $10,195.65Hence, the correct answer is A: $10,195.

Drill Quest,Inc Q=1,200−0.05PQ = 1,200 - 0.05 PQ=1,200−0.05P Using Cost-Plus Pricing,Drill Quest Prices Its Bits at $______________ Per

Drill Quest,Inc $Q = 1,200 - 0.05 P$ Using Cost-Plus Pricing,Drill Quest Prices Its Bits at $______________ Per