Answer the following questions using the information below:
Assume the following cost information for Fernandez Company:

-The Marietta Company has fixed costs of $40,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit:
A)must be $1.00
B)must be $1.33
C)must be $4.00
D)is indeterminable

Question

Answer the following questions using the information below:
Assume the following cost information for Fernandez Company:
 
-The Marietta Company has fixed costs of $40,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit:
A)must be $1.00 
B)must be $1.33 
C)must be $4.00 
D)is indeterminable

Quizplus · Accepted Answer

To determine the selling price per unit, we first need to calculate the total cost incurred by Marietta Company to produce and sell 50,000 units.
 
Total cost = Fixed cost + Variable cost
Variable cost = 75% of selling price
Profit = Revenue – Total cost
Revenue = Selling price x Number of units
 
Given:
Fixed cost = $40,000
Profit = $10,000
Number of units = 50,000
 
Let's substitute the given values in the profit equation:
 
Profit = Revenue – Total cost
$10,000 = (Selling price x 50,000) – (Fixed cost + 0.75 x Selling price x 50,000)
 
Solving for Selling price, we get:
 
Selling price = $4
 
Therefore, to realize profits of $10,000 from sales of 50,000 units, the selling price per unit must be $4.

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