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) / UNIT SALES HINT: Make sure you include all of Ally’s expenses in the right category

Explanation / Answer

It is to be noted :

Fixed cost = $375

Quantity sold = 900 dozen

Therefore, fixed cost per dozen = 375/900 = $ 0.417 ( rounded to 3 decimal places )

Cumulative unit cost per dozen

= Fixed cost per dozen + Variable cost per dozen + Commission per dozen

= $0.417 + $3 + $3

= $ 6.417

Also to be noted :

ROI = 60%   and Investment = $450 .

Therefore , total return = 60% of $450 = $270

Hence, Per unit (dozen ) return = $270 / 900 units (dozens) = $0.3 per dozen

Price to be charged per unit ( dozen )

= Unit cost per dozen + Per unit return

= $6.417 + $0.3

=$6.717 ( $6.72 rounded to 2 decimal place)

Price she needs to charge for a 60% return = $6.72 per dozen

Price she needs to charge for a 60% return = $6.72 per dozen

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