Grand Products is a price-setter,and they use cost-plus pricing methodology for pricing their products which are unique,artistically designed architectural decorations.It produces and sells 6,000 units per year,at its maximum capacity.Variable costs are $330 per unit.Total fixed costs are $900,000 per year.The CEO has a target of $50,000 operating income which he wants to hit by year-end.Using the cost-plus pricing method,what price should Grand use? (Round your answer to nearest whole dollar.)

Question

Quizplus · Accepted Answer

To calculate the price using cost-plus pricing methodology, we need to add the desired operating income to the total cost and divide by the number of units.

Desired operating income = $50,000
Total cost = Variable cost + Fixed cost
Total cost = 330 x 6,000 + $900,000
Total cost = $3,480,000
Price = (Total cost + Desired operating income) / Units sold
Price = ($3,480,000 + $50,000) / 6,000
Price = $571 per unit

Therefore, Grand Products should set the price at $488 per unit (since it needs to be rounded to the nearest whole dollar), which is option C.

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