Ally has promised Kat that she will get the same $3 per dozen commission regardl

Question

Ally has promised Kat that she will get the same $3 per dozen commission regardless of what price the cookies sell for. This makes Ally’s new costs look like this: Initial investment: $450 Fixed costs: $375 Variable costs: $3 (per dozen) Commission; $3 (per dozen) Ally is curious about what price she needs to charge to get a 60% Return on Investment (ROI) including her variable costs, initial investment and fixed costs. What price will she need to charge for a 60% ROI? For this calculation Ally is assuming sales of 900 dozen (900 units). Pay close attention to the investment and unit cost figures. This was covered in Module 6 and the formula is: FORMULA: ROI PRICE = UNIT COST + (ROI x INVESTMENT) / U Make sure you include all of Ally’s expenses in the right category

Explanation / Answer

Unit cost = variable cost + fixed cost = 3 + 375/900 = 3.42

Investment = 450

Desired ROI = 60%

Sales volume = 900 units

ROI price = 3.42 + 60%*450/900

= $ 3.72

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