A company with fixed costs of $200,000 per month believes that they have this holiday season's hot selling item, a towel that folds itself into a variety of shapes so you can turn your own home into a cruise ship cabin. They believe they can sell 100,000 units and need to determine a minimum price that will cover their fixed and variable costs, with the latter being $45 per unit.
A)$45.20
B)$46.50
C)$46.80
D)$47.00

Question

Quizplus · Accepted Answer

To cover both fixed and variable costs, the company needs to calculate the total cost and divide it by the number of units. Total cost = Fixed costs + (Variable cost per unit * Number of units) = $200,000 + ($45 * 100,000) = $4,700,000. The minimum price per unit = Total cost / Number of units = $4,700,000 / 100,000 = $47.00.

A Company with Fixed Costs of $200,000 Per Month Believes