Question

Lady Marion Seafood, Inc. sells 5-pound packages of Alaska salmon. Assume the variable cost per package is $30, and the fixed cost is $250,000. It wants a target profit of $38,000 on a volume of 16,000 packages. What should it charge for a five-pound package of salmon?

Answer 1

It should charge $48 for a five-pound package of salmon.

Explanation:

Assume the variable cost per package is $30, and the fixed cost is $250,000.

We know the formula: Profit = Total revenue - Total cost.

Profit = 38000

Total revenue = P x Q (P= price, Q = quantity)

Total revenue = 16000P

Total cost = [Fixed cost + (variable cost x quantity)]

Variable cost = 30

Fixed cost = 250000

Putting all values in formula: (P x Q) - [FC + (VC x Q)]

`38000=16000P -[250000+(30*16000)]`

Solving for P;

`38000=16000P -[250000+(30*16000)]`

=>
`38000=16000P -730000]`

=>
`16000P=768000`

Cancelling zeroes and dividing by 16 on both sides, we get;

P = $48

Hence, the company should charge $48 for a five pound package of salmon.