A custom kitchen cabinet storeowner wishes to use target profit pricing to establish a price for a typical section of cabinets. Assume variable cost is $200 per unit, fixed cost is $44,000, and a target profit of $10,000 on a volume of 400 cabinets is desired. What should be charged for a typical cabinet section?
A)$335.00
B)$455.00
C)$398.00
D)$310.00

Question

Quizplus · Accepted Answer

To achieve a target profit of $10,000 on 400 cabinets, the total revenue needed is the sum of total costs ($44,000 fixed costs + $200*400 variable costs) and the target profit, which equals $124,000. Dividing this by the volume (400 cabinets) gives a price of $310 per cabinet. However, to correct my initial calculation mistake, the correct approach is to add the fixed cost ($44,000), the total variable cost ($200*400 = $80,000), and the target profit ($10,000) to get a total of $134,000. Dividing this by the volume (400 cabinets) gives a price of $335 per cabinet.

A Custom Kitchen Cabinet Storeowner Wishes to Use Target Profit