1 Name 2 Pricing (rom Chaprer B, Ma nager ounting) Fixed Cos UVC $24,000 0.75 4
ID: 340570 • Letter: 1
Question
1 Name 2 Pricing (rom Chaprer B, Ma nager ounting) Fixed Cos UVC $24,000 0.75 4 Assume that you plan to open a soft ice cream franchise in a resort community during the summer months. Fixed costs for the three month peiod are projected 6 to be $24,000. Variable costs per serving (ice cream and cone) would be $0.75, and there is a $0.25 7 A marker analysis prepared by Oakland Ice indicates that summer 8 sales at the resort community should total 20,000 cones. # Sales Operating Profit 20000 $20,000 10 What price should be charged for eah ice cream to achieve a profit of $20,000? # ml: (Fixed Cost + Target Operating Profit)/UCM 14 (24000 +20000) UCM UCM 2.2 16 17 18 19 20 Unt Price 2.95 23 26 27 28 29Explanation / Answer
Let the price charged per ice cream cone be "x".
Total revenue = total units sold*price per unit = 20,000*x = 20,000x
Total variable expenses = 20,000*(0.75+0.25) = $20,000
Thus contribution margin = revenue - variable costs = 20,000x-20,000
Total profit = contribution margin - fixed costs = 20,000x-20,000-24,000
= 20,000x-44,000
Now total profit should be $20,000
Thus 20,000x-44,000 = 20,000
or 20,000x = 64,000
or x = 64,000/20,000
= $3.20
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