A company is trying to ascertain the selling price per unit for their product. It knows the OCF is $170,654, interest expense is $21,300, and fixed costs are $116,901. Variable costs are $25.89 per unit with 20,000 units expected to be sold. The tax rate is 34%. Fixed assets total $759,500 and are being depreciated straight-line to zero over seven years. What is the selling price per unit given this information?

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Quizplus · Accepted Answer

To find the selling price per unit, calculate the total costs and desired revenue. First, calculate depreciation: $759,500 / 7 = $108,500. Then, calculate EBIT: OCF + Depreciation - Interest = $170,654 + $108,500 - $21,300 = $257,854. Calculate EBT: EBIT - Interest = $257,854 - $21,300 = $236,554. Calculate taxes: EBT * Tax rate = $236,554 * 0.34 = $80,428.36. Calculate net income: EBT - Taxes = $236,554 - $80,428.36 = $156,125.64. Total revenue needed: Fixed costs + Variable costs + Net income = $116,901 + ($25.89 * 20,000) + $156,125.64 = $788,825.64. Selling price per unit: Total revenue / Units = $788,825.64 / 20,000 = $41.32.

A Company Is Trying to Ascertain the Selling Price Per