Polar Industries makes refrigerators. Polars management wants to market refrigerators to students in dorm rooms and small apartments by making a compact refrigerator. The competition, led by Walmart, prices small refrigerators at $76 each. The production manager at Polar Industries estimates that the small refrigerator could be produced for the following manufacturing costs.

Direct materials $24

Direct labor 10

Manufacturing overhead 8

Total $42

Polar's management wants to make an operating margin of 10 percent (operating margin equals revenues minus manufacturing costs).

Suppose Polar uses cost-plus pricing, setting the price to manufacturing costs plus 10 percent of manufacturing costs, What price should it charge for the refrigerator?

Question

Business

Alena Sims

1 February, 05:04

Polar Industries makes refrigerators. Polars management wants to market refrigerators to students in dorm rooms and small apartments by making a compact refrigerator. The competition, led by Walmart, prices small refrigerators at $76 each. The production manager at Polar Industries estimates that the small refrigerator could be produced for the following manufacturing costs.

Direct materials $24

Direct labor 10

Manufacturing overhead 8

Total $42

Polar's management wants to make an operating margin of 10 percent (operating margin equals revenues minus manufacturing costs).

Suppose Polar uses cost-plus pricing, setting the price to manufacturing costs plus 10 percent of manufacturing costs, What price should it charge for the refrigerator?

+2

Answers (1)

Know the Answer?

Rylan Randolph · Answer 1

Selling price = $46.2

Explanation:

Cost plus pricing determines the price of the product by adding a given percentage of the cost to the manufacturing cost to arrive at the price.

Selling Price = Manufacturing Cost + (mark-up (%) * manufacturing cost)

Selling price:

= 42 + (10% * 42)

= $46.2

Selling price = $46.2