Fine Arts Ltd 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 assets and shareholders expect a 7% return on assets.Additional data are as follows:
$$\begin{array} { | l | l | l | }
\hline \text { Sales volume } & 4000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed cost } & \$ 3,500,000 & \text { per year } \
\hline
\end{array}$$
Using the cost-plus pricing approach,what should be the price per unit?

Question

Fine Arts Ltd 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 assets and shareholders expect a 7% return on assets.Additional data are as follows:
$$\begin{array} { | l | l | l | } 
\hline \text { Sales volume } & 4000 & \text { units per year } \
\hline \text { Variable costs } & \$ 1000 & \text { per unit } \
\hline \text { Fixed cost } & \$ 3,500,000 & \text { per year } \
\hline
\end{array}$$
Using the cost-plus pricing approach,what should be the price per unit?

Quizplus · Accepted Answer

To find the price per unit using cost-plus pricing, first calculate the total cost and desired profit. Total cost = Fixed costs + (Variable cost per unit * Sales volume) = $3,500,000 + ($1,000 * 4000) = $7,500,000. Desired profit = 7% of $9,000,000 = $630,000. Total revenue needed = Total cost + Desired profit = $7,500,000 + $630,000 = $8,130,000. Price per unit = Total revenue needed / Sales volume = $8,130,000 / 4000 = $2033.

Fine Arts Ltd Produces a Special Kind of Light Weight,recreational