Question

As a product development manager, one of your tasks is to determine the best price for an item to increase company profits. To do that, you need to take into account the cost of making the product, the labor of creating the product, and other overhead costs for the company (such as rent, electricity, etc.) If a product uses $14.25 in materials, $3.55 in labor, and $2.15 in overhead costs, what would you need to sell the product for in order to make a 20% profit on the item?

Answer 1

$23.95

Explanation:

In order to calculate the best selling price we first need to calculate the total amount of costs. Since we are provided with each individual cost we simply need to add these costs together to find the total.

$14.25 + $3.55 + $2.15 = $19.95

Now that we have the total amount of costs, we know that this is the break-even price that the product needs to sell for in order for the company not to lose money. If the company wants to make a 20% profit on each sale then you would need to increase this amount by 20%. This is done by multiplying the total costs by 1.20, which is 20% divided by 100 to turn it into decimal form, and then adding 1 to make it increase the total cost.

$19.95 * 1.20 = $23.95

Therefore, the company needs to sell each item for $23.95 in order to make a 20% profit.