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Cost Based Pricing and profit calculations

A Grocery store makes pricing decisions based on cost of the products. All other costs are fixed at $800,000 per year. The average cost of inventory at the store is $1,000,000. The inventory turns over eight times a year.

a. If prices are set at 12% above costs, what is the profit of the grocery store for the year?

b. What is the profit of the grocery store if turnover increases to 10 times per year and prices remain at 12% above cost, what is the profit of the grocery store for the year?

c. What price mark-ups is necessary for the company to have a @300,000 profit if inventory turnover occurs eight times per year?

Solution Preview

a. $1,000,000 x 8 turns = 8,000,000 x 1.12 = 8,960,000 sales - 8,000,000 cost - 800,000 fixed costs = $160,000 of profit.

b. $1,000,000 x 10 turns = 10,000,000 x 1.12 = 11,200,000 sales - ...

Solution Summary

The solution discloses the calculations for each of the three scenarios

$2.19