A custom kitchen cabinet storeowner wishes to use target return-on-sales pricing to establish a price for a typical section of cabinets.Assume variable cost is $200 per unit, fixed cost is $44,000, and the storeowner desires a target profit of 20 percent of sales on an annual volume of 400 cabinets.What price should be charged for a typical cabinet section?
A)$372.00
B)$311.00
C)$445.50
D)$395.75
E)$387.50

Question

Quizplus · Accepted Answer

To find the price, calculate the total cost and desired profit. Total cost = Fixed cost + (Variable cost per unit * Volume) = $44,000 + ($200 * 400) = $124,000. Let P be the price per unit. Desired profit = 0.20 * (P * 400). Set up the equation: 124,000 + 0.20 * (P * 400) = P * 400. Solving for P gives P = $387.50.

A Custom Kitchen Cabinet Storeowner Wishes to Use Target Return-On-Sales