A custom kitchen cabinet storeowner wishes to use a target return-on-sales pricing approach to establish a price for a typical section of cabinets.Assume that variable costs total $200 per unit,fixed cost is $44,000,and the storeowner desires a target profit of 20 percent return on sales at an annual volume of 400 cabinets.What price should be charged for a typical cabinet section?

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost:

Total cost = Variable cost per unit X Volume + Fixed cost
Total cost = $200 X 400 + $44,000
Total cost = $124,000

Next, we need to calculate the target revenue:

Target revenue = Total cost / (1 - Target profit margin)
Target revenue = $124,000 / (1 - 0.2)
Target revenue = $155,000

Finally, we can calculate the price per unit:

Price per unit = Target revenue / Volume
Price per unit = $155,000 / 400
Price per unit = $387.50

Therefore, the price should be charged for a typical cabinet section is $387.50. So the answer is (C).

A Custom Kitchen Cabinet Storeowner Wishes to Use a Target