Allied Laboratories is combining some of its most common tests into one price package. One such package will contain three tests that have the following variable costs.
Test A = $4.60
Test B = $4.40
Test C = $5.00
When tests are combined A, B, and C the cost is $6.90
a. As a starting point, what is the price of the combined test assuming marginal cost pricing?
Price = $ 6.90
b. Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal?
Price to be set is calculated as under:
Test A = 4.60 +10 = $14.60
Test B = 4.40 +10 = $14.40
Test C = 5.00 +10 = $15.00
Allied estimates that 2,000 of the combined tests will be conducted during the first year. The annual allocation of direct fixed and overhead costs total $40,000. What price must be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test?