Question

Tamara Tools, Inc. wishes to earn a 30% return on its $100,000 investment in equipment used to produce T-squares for carpenters. Based on estimated sales of 20,000 T-square tools next year, the costs per unit would be as follows:Variable cost$15.00Fixed selling and administrative costs2.00Fixed manufacturing cost3.00At how much per unit should T-squares be priced for sale?A. $21.50B. $20.00C. $16.50D. $15.00

Answer 1

A. $21.50

Step-by-step explanation:

The computation of the per unit price is shown below:

= (Total cost + expected profit) ÷ (number of units sold)

where,

Total cost equal to

= (Variable cost per unit + Fixed selling and administrative costs per unit + Fixed manufacturing cost per unit) × (number of units sold)

= ($15 + $2 + $3) × 20,000

= $400,000

The expected profit would be

= $100,000 × 30%

= $30,000

And, the number of units sold is 20,000

Now put these values to the above formula

So, the per unit would equal to

= ($400,000 + $30,000) ÷ (20,000)

= $21.50