Sutton Products is a price-setter that uses the cost-plus pricing approach.The products are specialty vacuum tubes used in sound equipment.The CEO is certain that the company can produce and sell 310,000 units per year,due to the high demand for the product.Variable costs are $2.40 per unit.Total fixed costs are $970,000 per year.The CEO will receive stock options if $100,000 of operating income for the year is reported.What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

To achieve the target operating income of $100,000, the total costs (variable + fixed) and the target income must be covered by the sales. The total variable costs are $2.40 * 310,000 = $744,000. Adding the fixed costs of $970,000 gives total costs of $1,714,000. Adding the target income of $100,000 results in $1,814,000 needed from sales. Dividing by 310,000 units gives a price of $5.85 per unit.

Sutton Products Is a Price-Setter That Uses the Cost-Plus Pricing