Question

Assume that you plan to open a soft ice-cream franchise in a resort community during the summer months. Fixed operating costs for the three-month period are projected to be $9,800. Variable costs per serving include the cost of the ice cream and cone, $0.76, and a franchise fee payable to Austrian Ice, AG, $0.24. A market analysis prepared by Austrian Ice indicates that summer sales in the resort community should total 24,000 units. Determine the price you should charge for each ice cream cone to achieve a $25,000 profit for the three-month period. Round answer to two decimal places.

Answer 1

Answer:

$2.45

Explanation:

Fixed cost = $9,800

Variable cost:

= Units sold × (cost of the ice cream and cone + franchise fee)

= 24000 × ($0.76 + $0.24)

= $24,000

So,

total cost = Fixed cost +  Variable cost

               = $9,800 + $24,000

               = $33,800

Profit = $25,000

Now,

Sales = $58,800

Sales unit = 24,000

So,

Sales price per unit:

= $58,800 ÷ 24,000

= $2.45

Hence, the price one should charge for each ice cream cone to achieve a $25,000 profit for the three-month period is $2.45.