Elkins, a manufacturer of ice makers, realizes a cost of $250 for every unit it produces. Its total fixed costs equal $5 million. If the company manufactures 500,000 units, compute the following: unit cost markup price if the company desires a 10% return on sales ROI price if the company desires a 25% return on an investment of $1 million

A) unit sales price 288.88

B) unit sales price 260.5

Explanation:

B)

return of 25% in a 1,000,000 investment: 250,000

fixed cost per unit + variable cost + required return

5,000,000/500,000 + 250 + 250,000/500,000 =

10 + 250 + 0.5 = 260.5

A)

10% of sales as return:

fixed cost + variable + 10% of sales = Sales

10 + 250 + 0.1 S = S

260 = 0.9S

260/0.9 = S = 288,88