Off Road Concepts,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 7% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | r |l| }
\hline \text { Sales volume } & 2,000& \text { units per year } \
\hline \text { Variable costs } & \$ 1,000 &\text { per unit } \
\hline \text { Fixed costs } & \$ 3,500,000& \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Question

Off Road Concepts,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 7% return on assets.Assume all products produced are sold.Additional data are as follows: $$\begin{array} { | l | r |l| } 
\hline \text { Sales volume } & 2,000& \text { units per year } \
\hline \text { Variable costs } & \$ 1,000 &\text { per unit } \
\hline \text { Fixed costs } & \$ 3,500,000& \text { per year } \
\hline
\end{array}$$ Using the cost-plus pricing approach,what should be the sales price per unit?

Quizplus · Accepted Answer

To find the sales price per unit using cost-plus pricing, first calculate the desired profit: 7% of $9,000,000 = $630,000. Total cost = Variable costs ($1,000 * 2,000) + Fixed costs ($3,500,000) = $5,500,000. Total revenue needed = Total cost + Desired profit = $5,500,000 + $630,000 = $6,130,000. Sales price per unit = Total revenue needed / Sales volume = $6,130,000 / 2,000 = $3,065.

Off Road Concepts,Inc Using the Cost-Plus Pricing Approach,what Should Be the Sales Price