Question

) Saffron Foods sells jars of special spices used in Spanish cooking. The variable cost is $2 per unit. Fixed costs are $9,000,000 per year. It has $40,000,000 of average assets, and the desired profit is a 5% return on assets. Saffron Foods sells 5,000,000 units per year. The company uses cost-plus pricing because it is the only company that produces this kind of product. Using cost-plus pricing methodology, determine the sales price per unit. (Round your answer to the nearest cent.) A) $3.80 B) $2.40 C) $4.20 D) $2.00

Answer 1

C. $4.20

Step-by-step explanation:

The computation is shown below:

Before that we need to do following calculations

Total costs to be incurred is

= ($2 × 5,000,000 units) + $9,000,000

= $19,000,000

Now

Required return is

= $40,000,000 × 5%

= $2,000,000

So,

Sales price per unit is

= (Total cost incurred + required return) ÷ number of unit sold

= ($19,000,000 + 2,000,000) ÷ 5,000,000 units

= $4.20