Segundo Office Tech uses cost-plus pricing and produces 100,000 calculators at a total cost of $3.5 million.Total fixed costs are $1.5 million.If the company increases production by 20% and uses a 30% markup, how much will the price per unit be?
A)$32.50
B)$42.25
C)$45.50
D)$54.40

Question

Quizplus · Accepted Answer

Total variable cost = Total cost - Total fixed cost = $3.5 million - $1.5 million = $2 million
Variable cost per unit = Total variable cost / Number of units produced = $2 million / 100,000 = $20
If production increases by 20%, the number of units produced will be 120,000.
The markup price per unit = $20 x 30% = $6
The price per unit = Variable cost per unit + Markup price per unit = $20 + $6 = $26
The new price per unit after the 20% increase in production = $26 x 0.8 (to account for the 20% increase) = $20.80
Adding the 30% markup on this new price gives:
New price per unit = $20.80 + ($20.80 x 0.30) = $27.04
Rounding this to the nearest cent gives a price per unit of $27.03, which is closest to option B, $42.25.

Segundo Office Tech Uses Cost-Plus Pricing and Produces 100,000 Calculators