A custom kitchen cabinet storeowner wishes to use target profit pricing to establish a price for a typical section of cabinets.Assume variable cost is $200 per unit,fixed cost is $44,000,and the storeowner desires a target profit of 20 percent of sales on an annual volume of 400 cabinets.What price should be charged for a typical cabinet section?
A)$311.00
B)$372.00
C)$387.50
D)$395.75

Question

Quizplus · Accepted Answer

To calculate the target profit price, we need to determine the total cost and then add the target profit to get the price.

Total Cost = Fixed Cost + (Variable Cost x Volume)
Total Cost = $44,000 + ($200 x 400)
Total Cost = $124,000

Target Profit = 20% of Sales
Target Profit = 0.2 x Price x Volume

Therefore,

Price = (Target Profit + Total Cost) / Volume
Price = ($124,000 x 1.2) / 400
Price = $372.00

Hence, the price for a typical cabinet section should be $387.50 (Option C).

A Custom Kitchen Cabinet Storeowner Wishes to Use Target Profit