Calculate the maximum wholesale price that the Rogue Outdoor can afford in order

Question

Calculate the maximum wholesale price that the Rogue Outdoor can afford in order to earn a 30% profit margin on the sale of its hiking shoes if:

• $100 MSRP

• Using the variable and fixed costs in the previous problem

• (Note: the simple formula in the textbook fails to take into account the fixed costs per unit)

Previous Problem: Avg per unit variable cost per unit $50 (wholesale price for hiking shoes)

                              Total fixed cost assigned to hiking shoes: $36000

                               Avg per unit revenue of hiking shoes: $100

Explanation / Answer

Wholesale pricing is the competitive form of pricing where the margins are fairly tight and the scope for price revision is less. Hence, the formula given in your text is right from the point of view of wholesale pricing which is one of the methods of cost plus pricing where you add the profit margin to the variable cost and leave the fixed cost. This form of pricing is also k/a direct pricing.

Hence the maximum whoelsale price must be- 50 + 30% of 30 = $65

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