Terra Potteryworks is a price-setter that uses the cost-plus pricing approach for pricing its products.These products are unique,artistically designed architectural decorations.Terra produces and sells 6200 units per year,which represent maximum capacity.Variable costs are $320 per unit.Total fixed costs are $910,000 per year.The CEO has a target of $60,000 in operating income,which he wants to achieve by year-end.Using the cost-plus pricing method,what sales price per unit should Terra use? (Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

To calculate the sales price per unit, we need to first calculate the total cost per unit. 
Total cost per unit = Variable cost per unit + (Total fixed cost/Total units produced)
Total cost per unit = $320 + ($910,000/6,200) = $464.52
Next, we need to add the desired operating income to the total cost per unit to get the target selling price.
Target selling price per unit = Total cost per unit + Desired operating income/Total units produced
Target selling price per unit = $464.52 + ($60,000/6,200) = $476.45 (rounded to the nearest cent)
Therefore, the best choice is C, as the target price of $476.45 per unit will help the company achieve the desired operating income of $60,000 while covering all costs.

Terra Potteryworks Is a Price-Setter That Uses the Cost-Plus Pricing