Question

Daphne Baker plans to sell blueberry pies at a local farmer's market. The permit and space rental will cost her $2,200 for the June through August season. She expects to have an average variable cost of $2.15 per pie and expects to sell 900 pies per month. Daphne also expects all other fixed costs to be $3,000 for the entire season. If she wants to realize a $12,000 profit, how much should she sell each pie for? Assume no sales tax (round to the nearest penny and enter answer like this $9.46)

Answer 1

CALCULATION OF SELLING PRICE

We can calculate selling price by cost plus desired profit method

Expected sales=900 per month*3 month=2700 Nos.

Variable cost of 2,700 pies@$2.15 per pie=2700*$2.15=$5,805

Rental cost for the season =$2,200.

Other fixed Cost for the season =$3,000

Desired profit=$12,000

Required total sales from $2,700 pies=Variable cost+rental+fixed cost+desired profit

                                                        =$5,805+$2,200+$3,000+$12,000

                                                      =$23,005

Selling price to be set to get a profit of $12,000=$23,005/2700=$8.52037 or $8.52(when rounding to nearest cents)

Particulars	per unit	2700 units
Sales(A)	$         8.52	$ 23,005.00
Variable cost(B )	$         2.15	$    5,805.00
Rental( C )		$    2,200.00
Other fixed Costs ( D)		$    3,000.00
PROFIT,P=A-B-C-D		$ 12,000.00