Question

Lockeed Marretta Company is exploring the possibility of introducing a new product. Lockeed has developed the following data in order to help determine a selling price for that new product.Number of units to be produced and sold each year 16,500 Unit product cost $ 50 Projected annual selling and administrative expenses $ 60,000 Estimated investment required by the company $ 530,000 Desired return on investment (ROI) 20 %The absorption costing approach to cost-plus pricing is used at Lockeed Marretta Company for such decisions.Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places. )

Answer 1

Answer:

sales price 60.06

Explanation:

The investment is 530,000

We need a return of 20%

530,000 x 20% = 106,000

We now need to determinate which sales price gives a net income of 106,000

16,500 x (sales price - 50) - adminitrative expense 60,000 = 106,000

16,500 sales price - 50 x 16,500 = 106,000+ 60,000

16,500 sales price = 825,000 + 106,000+ 60,000

sales price = 991,000/16,500 = 55,2121 = 60.06

We can check the answer by bulding an income statment

sales revenue 16,500 x 60.06     990,990

COGS  16,500 x 50                      (825,000)  

gross profit                                    165,990

S&A expense                                (60,000)

net income                                    105,990