A custom tailor wishes to use target profit pricing to establish a price for a custom-designed business suit. Assume variable cost is $200 per suit, fixed cost is $44,000, and the target profit is $50,000 based on a volume of 50 suits. What price should be charged for a typical custom suit?
A) $520
B) $1,040
C) $1,880
D) $2,080
E) $10,000

Question

Quizplus · Accepted Answer

To find the price, calculate the total cost (fixed + variable) and add the target profit, then divide by the number of suits. Total cost = $44,000 + ($200 * 50) = $54,000. Total revenue needed = $54,000 + $50,000 = $104,000. Price per suit = $104,000 / 50 = $2,080.

A Custom Tailor Wishes to Use Target Profit Pricing to Establish