The market price for a product has been $64 per unit, but competitive pressures
ID: 340780 • Letter: T
Question
The market price for a product has been $64 per unit, but competitive pressures have reduced the market price to $60. The firm manufactures 15,500 of these products per year at a manufacturing cost of $46 per unit (including $25 fixed cost and $21 variable cost per unit). Other selling and administrative costs for the product are $1 per unit.
1-
The firm ignores competitive prices because it has a differentiated product. It uses full manufacturing cost–based pricing with a 42% markup. What is the firm’s price?
2-The firm ignores competitive prices because it has a differentiated product. It uses cost life cycle–based pricing with a 28% markup. What is the firm’s price?
The firm ignores competitive prices because it has a differentiated product. It uses full manufacturing cost–based pricing with a 42% markup. What is the firm’s price?
Explanation / Answer
Solution 1:
Manufacturing cost per unit = $46
Markup on cost = 42%
Firm's price = $46 + ($46*42%) = $65.32
Solution 2:
Total cost per unit = Manufacturing cost per unit + Selling and administrative cost per unit
= $46 + $1 = $47 per unit
Markup = 28% of total cost
Firm's Price = $47 + ($47*28%) = $60.16
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