Nelson Products is a price-setter,and they use cost-plus pricing methodology for pricing their products which are specialty vacuum tubes used in sound equipment.The CEO is certain that he can produce and sell 320,000 units per year,due to the high demand for the product.Variable costs are $2.30 per unit.Total fixed costs are $970,000 per year.The CEO will receive share options if he reports $200,000 of operating profit for the year.Using the cost-plus pricing method,what price would allow the CEO to achieve his target? (Please round to nearest cent.)

Question

Quizplus · Accepted Answer

To calculate the price that would allow the CEO to achieve his target, we need to follow the cost-plus pricing methodology. This involves adding a markup to the total cost per unit, where the markup is the desired profit margin.

First, we need to calculate the total cost per unit:

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

Total cost per unit = $2.30 + ($970,000 / 320,000) = $5.96

Next, we need to calculate the markup required to achieve the CEO's target:

Markup = Target operating profit / Number of units produced

Markup = $200,000 / 320,000 = $0.625 per unit

Finally, we can calculate the price that would allow the CEO to achieve his target:

Price = Total cost per unit + Markup

Price = $5.96 + $0.625 = $6.585

Rounding this to the nearest cent gives us a price of $6.59 per unit. Therefore, the best choice is C.

Nelson Products Is a Price-Setter,and They Use Cost-Plus Pricing Methodology