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

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

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