Question

Gabriel Metalworks produces a special kind of metal ingots that are​ unique, which allows Gabriel to follow a cost−plus pricing strategy. Gabriel has $10,000,000 of assets and shareholders expect approximately a 7​% return on assets. Assume all products produced are sold. Additional data are as​ follows:Sales volume350,000units per yearVariable costs$16per unitFixed costs$1,500,000per yearUsing the cost−plus pricing​ approach, what should be the sales price per​ unit? (Round your answer to the nearest​ cent.)

Answer 1

sale price is $0.78

Step-by-step explanation:

Given data

assets = $10,000,000

rate = 7% = 0.07

Sales volume = 350,000 units per year

Variable costs = $16 per unit

Fixed costs = $1,500,000 per year

to find out

sales price per​ unit

solution

we find required return that i s

return = asset × rate

return = 10,000,000 × 0.07

return = $700000

so here total cost = Sales volume × Variable costs + fixed cost

put here all these value

total cost = 350000 × 16 + 1,500,000

total cost = $7100000

so now for sale price

sale price = total cost + required return / sale

put all these value

sale price = ( 7100000 + 700000 ) / 10,000,000

sale price is $0.78