For a Widget manufacturer, the fixed cost of his operations is $300,000 per year
ID: 2748795 • Letter: F
Question
For a Widget manufacturer, the fixed cost of his operations is $300,000 per year. The variable cost of each Widget is $10. (a) If the manufacturer requires 20% margin on sale price (not on cost), and can sell 50,000 Widgets a year, at what price should he sale his Widgets? (b) What is his break-even volume at the price you calculated in (a)? (c) If the manufacturer has invested $1 million and wants to get 20% return on his investment by selling Widgets and can sell only 50,000 widgets a year, what price it should charge?
a. $12
b. 300,000 / (12-10) = 300,000 / 2 = $150,000
c. 20% of 1 million = 200,000. 1,200,000 / 50,000 = $24
Are my answers correct?
Explanation / Answer
a) Selling price $ 20 (300000+10*50000)*(1+25%)/50000 b) Breakeven volume 30,000 300000/(20-10) Units c) Price $ 20 (300000+10*50000+1000000*20%)/50000