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

First, calculate the desired profit: 8% of $9,000,000 = $720,000. Total costs include fixed costs of $4,000,000 and variable costs of $1,000 per unit for 1000 units, totaling $1,000,000, so total costs are $5,000,000. Adding the desired profit of $720,000 to the total costs gives $5,720,000. Dividing by 1000 units gives a price per unit of $5720.

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