custom kitchen cabinet storeowner wishes to use a target return-on-sales pricing approach to establish a price for a typical section of cabinets.Assume that variable costs total $200 per unit,fixed cost is $44,000,and the storeowner desires a target profit of 20 percent return on sales at an annual volume of 400 cabinets.What price should be charged for a typical cabinet section?

Question

Quizplus · Accepted Answer

To calculate the target price using the target return-on-sales approach, we need to use the following formula:

Target Price = Variable Cost per Unit + (Fixed Cost / Annual Volume) + (Target Profit x Annual Volume) / Annual Volume

Here, Variable Cost per Unit is $200, Fixed Cost is $44,000, Annual Volume is 400, and Target Profit is 20% of sales.

Substituting the values in the formula, we get:

Target Price = 200 + (44,000 / 400) + (0.2 x 400)

Target Price = 200 + 110 + 80

Target Price = $387.50

Therefore, the best choice is C) $387.50, as it is the calculated target price based on the given information.

Custom Kitchen Cabinet Storeowner Wishes to Use a Target Return-On-Sales