Exercise - Cost -Plus Pricing
World View is considering production of a lighted world globe that the company would price at a markup of 25 percent above full cost. Management estimates that the variable cost of the globe will be $60 per unit and fixed costs per year will be $240,000.
Required
a. Assuming sales of 1,200 units, what is the full cost of a globe, and what is the price with a 25 percent markup?
b. Assume that the quantity demanded at the price calculated in part a is only 600 units. What is the full cost of the globe, and what is the price with a 25 percent markup?
c. Is the company likely to sell 600 units at the price calculated in part b?