Yummy Foods sells jars of special spices used in Spanish cooking.The variable cost is $2 per unit.Fixed costs are $10,000,000 per year.It has $40,000,000 of assets and investors expect a return of 5% on their assets.Yummy Foods sells 4,000,000 units per year.They use cost-plus pricing because they are the only company which produces this kind of product.Using cost-plus pricing methodology,determine the price per unit.(Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

The price per unit using cost-plus pricing is calculated by adding the variable cost per unit, the fixed cost per unit, and the desired return on assets per unit. The fixed cost per unit is $10,000,000 / 4,000,000 = $2.50. The desired return on assets per unit is ($40,000,000 * 5%) / 4,000,000 = $0.50. Therefore, the price per unit is $2 (variable cost) + $2.50 (fixed cost) + $0.50 (return) = $5.00.

Yummy Foods Sells Jars of Special Spices Used in Spanish