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Nelson Products is a price-setter that uses the cost-plus pricing approach. The products are specialty vacuum...

Nelson Products is a price-setter that uses the cost-plus pricing approach. The products are specialty vacuum tubes used in sound equipment. The CEO is certain that the company can produce and sell 300,000 units per year, due to the high demand for the product. Variable costs are $2.30 per unit. Total fixed costs are $980,000 per year. The CEO will receive stock options if $300,000 of operating income for the year is reported. What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to the nearest cent.)

a

$6.57 per unit

b

$2.30 per unit

c

$4.27 per unit

d

$4.57 per unit

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Expert Solution

Answer)

Calculation of price per unit

Price per unit = (Total cost + operating income)/ number of units sold

                          = (Total variable cost + Total fixed cost + Operating Income)/ number of units sold     

                         = [(300,000 X $ 2.30 per unit) + $ 980,000 + $ 300,000)]/ 300,000 Units

                          = ($ 690,000 + $ 980,000 + $ 300,000)/ 300,000 units

                          = 6.57 per unit (approximately)

Therefore the price per unit should be $ 6.57 per unit and the correct option in the given question is (a) $ 6.57 per unit

   

ekkarill92 answered 2 years ago
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