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    A Pricing Decision Exercise

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    Tree Top Company is in the process of setting a selling price for its newest model stunt kite, thlooper. The controller of Tree Top estimates variable cost per unit for the new model to be as

    Direct materials $15.00
    Direct labor $12.00
    Variable manufacturing overhead $4.00
    Variable selling and administrative expenses $5.00

    In addition, Tree Top anticipates incurring the following fixed cost per unit at a budgeted sales
    volume of 20,000 units:
    Total Cost Budget Cost
    Cost Volume per unit

    Fixed manufacturing overhead $240,000 20,000 $12.00
    Fixed selling and administrative expenses $260,000 20,000 $13.00
    Fixed cost per unit $25.00

    Tree Top uses cost-plus pricing and would like to earn a 12% return on its investment (ROI) of $250,000.

    Compute the selling price that would provide Tree Top a 12% ROI.

    Solution Template: Unit Price

    Variable cost per unit $-
    Fixed cost per unit $-
    Desired ROI per unit $-
    Target Selling price $-

    Desired ROI per unit
    ( * .12% / units = $ . )

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    Solution Summary

    This solution helps complete a pricing decision exercise.