Vacuum Products is a price-setter, and they use cost-plus methodology for pricing their products which are specialty vacuum tubes used in sound equipment. The CEO is certain that he can produce and sell 200,000 units per year, due to the high demand for the product. Variable costs are $1.40 per unit. Total fixed costs are $950,000 per year. The CEO will receive stock options if he reports $100,000 of operating income for the year. Using the cost-plus method, what price would allow the CEO to achieve his target? (Please round to nearest cent.)

Question

Quizplus · Accepted Answer

B) Calculations:
200,000 × $1.40 = $280,000
$280,000 + $950,000 + $100,000 = $1,300,000
$1,300,000 / 200,000 = $6.50

Vacuum Products Is a Price-Setter, and They Use Cost-Plus Methodology