Jessup Company expects to incur overhead costs of $10,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?
A) $183
B) $175
C) $295
D) $130

Question

Quizplus · Accepted Answer

The total overhead costs for the year are $10,000 per month * 12 months = $120,000. The total direct production costs for the year are $125 per unit * 1,000 units = $125,000. The total costs are $120,000 + $125,000 = $245,000. To achieve a gross profit of $50 per unit on 1,000 units, the total gross profit desired is $50 * 1,000 = $50,000. Therefore, the total revenue needed is $245,000 + $50,000 = $295,000. Dividing this by the number of units (1,000) gives a sales price per unit of $295.

Jessup Company Expects to Incur Overhead Costs of $10,000 Per