Appalachee Company produces gaskets for the automotive industry. Current production cost is $3.50 per gross. There is a highly competitive market for the product, and Appalachee currently uses a target pricing approach. Currently, equivalent products are selling for $4.75 per gross.
Apalachee wishes to earn a minimum of a 40% markup over cost. What would be their most appropriate response? (Please round all amounts to the nearest cent.)

Question

Quizplus · Accepted Answer

To achieve a 40% markup on a $3.50 cost, the price should be $4.90 ($3.50 * 1.40). Since the market price is $4.75, they should reduce costs by $0.11 to maintain competitiveness and achieve the desired markup.

Appalachee Company Produces Gaskets for the Automotive Industry