Question

Suppose you work for a company that makes a product line for a large hardware chain. The chain asks you for a price quote for 30,000 units that will require a $1,500,000 investment with marginal costs of $15 per unit. What is the lowest price you are willing to quote

Answer 1

$1,950,000

Step-by-step explanation:

Note the company has a margin per unit cost and investment cost, where

investment cost = $1,500,000

+

margin per unit cost = $450,000 (30,000 x $15)

Thus, total cost = $1,950,000. Since companies do not want to make loses, but may allow for break-even, the lowest price to quote should not be lesser than the total cost of $1,950,000.