Question

A custom tailor wishes to use target profit pricing to establish a price for a custom-designed business suit. Assume variable cost is $200 per suit, fixed cost is $44,000, and the target profit is $50,000 based on a volume of 50 suits. What price should be charged for a typical custom suit?

Answer 1

Answer:

$2,080 per custom suit

Explanation:

The costs of 50 suits should cover the variable costs, the fixed costs and the expected net profit.

50 x price per custom suit = ($200 x 50) + $44,000 + $50,000

50 x price per custom suit = $10,000 + $44,000 + $50,000 = $104,000

50 x price per custom suit = $104,000

price per suit = $104,000 / 50 = $2,080 per custom suit