Conquest,Inc.produces a special kind of light-weight,recreational vehicle that has a unique design.It allows the company to follow a cost-plus pricing strategy.It has $9,000,000 of average assets,and the desired profit is a 8% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | r | l | }
\hline \text { Sales volume } & 1000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed costs } & \$ 4,000,000 & \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Question

Conquest,Inc.produces a special kind of light-weight,recreational vehicle that has a unique design.It allows the company to follow a cost-plus pricing strategy.It has $9,000,000 of average assets,and the desired profit is a 8% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | r | l | } 
\hline \text { Sales volume } & 1000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed costs } & \$ 4,000,000 & \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Quizplus · Accepted Answer

The correct answer is A.The cost-plus pricing approach sets the sales price as the sum of the unit cost and a markup that covers the desired profit. The unit cost is the sum of the variable cost and the fixed cost per unit. The fixed cost per unit is the fixed cost divided by the sales volume.The unit cost is $1000 + $4,000,000 / 1000 = $5000. The markup is 8% of the average assets, which is $9,000,000 * 8% = $720,000. The markup per unit is $720,000 / 1000 = $720. The sales price per unit is $5000 + $720 = $5720.

Conquest,Inc Using the Cost-Plus Pricing Approach,what Should Be the Sales Price