Stone Company plans to sell 200,000 calculators. The fixed costs are $600,000, and the variable costs are 60% of the selling price. If the company wants to realize a profit of $120,000, the selling price of each calculator must be:

Question

Quizplus · Accepted Answer

To calculate the selling price we need to use the following formula:

selling price = (fixed costs + variable costs + profit) / number of units

We know that the company plans to sell 200,000 calculators, the fixed costs are $600,000, and the variable costs are 60% of the selling price. Also, the company wants to realize a profit of $120,000.

So, plugging in the numbers, we get:

selling price = ($600,000 + 0.6x + $120,000) / 200,000

Where x is the selling price.

Simplifying the formula, we get:

selling price = $3.60 + x/5

Now, we can plug in each of the answer choices to see if they work:

A) $5.00 = $3.60 + $5.00/5 = $4.60 (not enough profit)
B) $7.50 = $3.60 + $7.50/5 = $5.10 (not enough profit)
C) $9.00 = $3.60 + $9.00/5 = $6.00 (works)
D) $10.00 = $3.60 + $10.00/5 = $6.60 (works, but not the best choice)

Therefore, the best choice is C) $9.00.

Stone Company Plans to Sell 200,000 Calculators