2 3 . The Dynamics Company uses cost-plus pricing with a 50% mark-up. The compan

Question

23.

The Dynamics Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge?

A)

$13.50

B)

$14.55

C)

$12.75

D)

$10.95

23.

The Dynamics Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge?

A)

$13.50

B)

$14.55

C)

$12.75

D)

$10.95

Explanation / Answer

For 80,000 units the variable cost is 6 X 80000= 480,000

The fixed cost is = 200,000

Total cost of 80,000 units is = 480,000 + 200,000 = 680,000

Cost per unit = 680,000/80,000 = $8.5

To earn the 50% return the sale price of the unit is 8.5 X 1.5 = $12.75

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