Question

In: Accounting

PEP uses a cost-plus model to determine the price it charges students. Specifically, the Company charges...

PEP uses a cost-plus model to determine the price it charges students. Specifically, the Company charges cost plus 20% of cost. Fixed costs, including facility rental and instructor compensation, amount to $6,500 per month. PEP incurs variable costs for books and supplies that amount to $55 per student. Monthly, enrollment tends to fluctuate. The following data represent the Company's expectations for the first three months of the current year.

Month January February March Total
No. of Students 30 35 35 100
Total Variable Cost $ 1,650 $ 1,925 $ 1,925 $ 5,500
Total Fixed Cost $ 6,500 $ 6,500 $ 6,500 $ 19,500

Based on this information which of the following amounts represents the average price PEP should charge per student for the month of January.

  • $250.00

  • $300.00

  • $271.67

  • $326.00 Please provide step by step solutions and formulas

Solutions

Expert Solution

Total Cost for the Quarter = $25000 i.e. $5500+19500

Average Cost per student = $25000 / 100 = $250 per student
Selling Price = $250 x 1.20 = $300 per student

Answer is b. $300

ekkarill92 answered 2 years ago
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