Off Road Concepts, Inc. produces a special kind of light-weight, recreational vehicle that has a unique design. It allows the company to follow a cost-plus pricing strategy. It has $9,000,000 of average assets, and the desired profit is a 8% return on assets. Assume all products produced are sold. Additional data are as follows:

Sales volume1000 units per year

Variable costs $1000 per unit

Fixed costs $4,000,000 per year

Required:

1. Using the cost-plus pricing approach, what should be the sales price per unit?

O $5,720

O $9,000

O $1,080

O $1,000

Question

Business

Jesus Daniel

22 September, 16:51

Off Road Concepts, Inc. produces a special kind of light-weight, recreational vehicle that has a unique design. It allows the company to follow a cost-plus pricing strategy. It has $9,000,000 of average assets, and the desired profit is a 8% return on assets. Assume all products produced are sold. Additional data are as follows:

Sales volume1000 units per year

Variable costs $1000 per unit

Fixed costs $4,000,000 per year

Required:

1. Using the cost-plus pricing approach, what should be the sales price per unit?

O $5,720

O $9,000

O $1,080

O $1,000

+2

Answers (1)

Know the Answer?

Kayla Carney · Answer 1

Selling price per unit = $5720 per product

Explanation:

To calculate the selling price using cost plus approach, we need to calculate the total cost and add the target profit to it.

The target profit is = 9000000 * 8% = 720000

The total cost fro 1000 units is,

Variable cost = 1000 * 1000 = 1000000

Fixed cost = 4000000

Total cost = 1000000+4000000 = 5000000

Total cost + target profit = 5000000 + 720000 = 5720000

Selling price per unit = 5720000 / 1000 = 5720 / unit