Question

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

Answer 1

$39.2

Step-by-step explanation:

From the information provided, you can ue the following formula to find the price that Jacki will need to reach her target profit of $60,000 per year:

Profit= sales-Variable costs-fixed costs

The sales are equal to the quantity sold for the price per unit and the variable costs are equal to the quantity sold for the variable cost per unit.

Then, the statement says that the sells will increase 25%, so:

10,000*1.25= 12,500

Now, you can replace the formula and isolate the price per unit to find the answer:

Profit= 60,000

Sales= 12,500

Variable costs per unit= 20+8= 28

Fixed costs= 80,000

60,000= (12,500*p)- (12,500*28)-80,000

60,000= 12,500p-350,000-80,000

60,000=12,500p-430,000

60,000+430,000= 12,500p

490,000=12,500p

p=490,000/12,500

p= 39.2

If Jacki increases the quality of the stones, she will need to charge $39.2 to attain her target profit of $60,000 per year.