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# A Pricing Decision Exercise

Better understanding with attachment (sorry but thank you)

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
follows:

Direct materials \$15.00
Direct labor \$12.00
Variable selling and administrative expenses \$5.00
\$36.00

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.

Instructions:
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 = \$ . )

#### Solution Summary

This solution helps complete a pricing decision exercise.

\$2.19