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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

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.