Seneca Company has invested $1,000,000 in a plant to make gas pumps for service stations.The average long-run income desired from the plant is $150,000 annually.The annual cost base for each pump is $1,000.What should be the prospective selling price for each pump if the company uses a target return on investment as the markup base?

Question

Quizplus · Accepted Answer

The target return on investment is 15%, so the markup should be $150,000 / $1,000,000 = 15%. The cost base is $1,000, so the selling price should be $1,000 + 15% * $1,000 = $1,150.

Seneca Company Has Invested $1,000,000 in a Plant to Make