Annual demand for the product is expected to be 500,000 tubes. On average, the c

Question

Annual demand for the product is expected to be 500,000 tubes. On average, the company now earns an 8 percent return on assets.

- Compute the projected unit cost for one tube of Sparkle. Round your answer to two decimal places.
$

- Usinggross margin pricing, compute the markup percentage and selling price for one tube. Round your answer to two decimal places.

- Usingreturn on assets pricing, compute the unit price for one tube. Round your answer to two decimal places.
$

Explanation / Answer

Total Expenses = VC + FC + Selling Exp + G&A exp = 900,000 + 500,000 + 200,000+125,000 = 1725,000 So Cost pu = Total Exp/No of units = 1725,000/500,000 = $3.45 ....Ans (a) Markup Percentage = (Desird profit + Selling exp + G&A exp)/(VC +FC) = (375,000+200,000+125,000)/(900,000+500,000) = 700,000/1400,000 = 50% Gross Margin–Based Price = (Var exp + FC + Selling exp + G&A exp+Desird profit)/No of units produced So Gross Margin–Based Price = (900,000 + 500,000 + 200,000+125,000+375,000)/500,000 = $4.20 Return on assets pricing = Total Cost & Exp pu + (Desired Rate of retrun*Cost of Asset employed pu) = $3.45 + (8%*1000,000/500,000) = $3.61

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