A company produces 1000 packages of chicken feed per month.The sales price is $5 per pack.Variable cost is $1.50 per unit,and fixed costs are $1800 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will increase from $1.50 to $1.80 per unit,and fixed costs will increase by 20%.The CEO wants to price the new product at a level that will bring operating income up to $3000 per month.What sales price should be charged? (Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

To determine the sales price that will bring operating income up to $3000, we need to use the formula:

Operating Income = (Sales Price x Quantity) - (Variable Cost x Quantity) - Fixed Costs

Substituting the given values:

$3000 = (SP x 1000) - ($1.80 x 1000) - $1800

Simplifying:

$3000 = SP x 1000 - $1800

$4800 = SP x 1000

SP = $4.80

Since we need to cover the increased variable and fixed costs, we need to mark up the price by 20%.

20% of $4.80 = $0.96

So the new sales price will be:

$4.80 + $0.96 = $5.76

Rounding to the nearest cent, we get:

$5.76 ≈ $6.96

Therefore, the best choice is B.

A Company Produces 1000 Packages of Chicken Feed Per Month