Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker's profit target is $75,000, what price should it charge?
A)$14.38
B)$35.17
C)$17.21
D)$11.26

Question

Quizplus · Accepted Answer

To calculate the price that Pandecker should charge, we need to use the following formula:

Price = (Variable Cost per Unit × Units Produced) + Fixed Costs + Profit Target ÷ Units Produced

Price = ($11.26 × 26,500) + $82,770 + $75,000 ÷ 26,500 
Price = $298,390 ÷ 26,500 
Price = $11.26 + $12.03 
Price = $23.29

Therefore, the price that Pandecker should charge is $23.29. Since this is not one of the answer choices provided, we need to use estimation to determine the closest option. Option C ($17.21) is closest to the calculated price and therefore is the best choice.