Outdoor Recworld produces a special kind of light-weight recreational vehicle that has a unique design, and it allows the company to follow a cost-plus pricing strategy. Outdoor Recworld has $8,000,000 of assets and shareholders expect a 12% return on assets. Additional data are as follows:
$\begin{array}{|l|r|r|}
\hline \text { Sales volume } & 5,000 & \text { Units per year } \
\hline \text { Variable costs } & \$ 1,800.00 & \text { Per unit } \
\hline \text { Fixed cost } & \$ 2,200,000 & \text { Per year }\
\hline
\end{array}$

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Using the cost-plus approach, what should the price per unit be?

Question

Outdoor Recworld produces a special kind of light-weight recreational vehicle that has a unique design, and it allows the company to follow a cost-plus pricing strategy. Outdoor Recworld has $8,000,000 of assets and shareholders expect a 12% return on assets. Additional data are as follows:
$\begin{array}{|l|r|r|}
\hline \text { Sales volume } & 5,000 & \text { Units per year } \
\hline \text { Variable costs } & \$ 1,800.00 & \text { Per unit } \
\hline \text { Fixed cost } & \$ 2,200,000 & \text { Per year }\
\hline
\end{array}$

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Using the cost-plus approach, what should the price per unit be?

Quizplus · Accepted Answer

The correct answer is A.The cost-plus pricing formula is:Price = Variable cost per unit + Fixed cost / Sales volume + Desired return on assetsPrice = $1,800 + $2,200,000 / 5,000 + 0.12 * $8,000,000 / 5,000Price = $1,800 + $440 + $192Price = $2,432

Outdoor Recworld Produces a Special Kind of Light-Weight Recreational Vehicle