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 6100 units per year,which represent maximum capacity.Variable costs are $330 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 determine the price per unit using cost-plus pricing, we first need to calculate the total cost per unit:

Total cost per unit = Variable cost per unit + (Total fixed costs / Number of units)

Total cost per unit = $330 + ($910,000 / 6,100) = $466.39

Next, we add the desired markup to the total cost per unit to get the sales price per unit:

Sales price per unit = Total cost per unit x (1 + Desired markup as a decimal)

Sales price per unit = $466.39 x (1 + 0.25) = $582.99

Therefore, the sales price per unit that Terra should use is $489.02 per unit, which is the closest answer choice.

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