CCC Company produce 15,000 units. It estimates the following operating costs for next year: Variable operating costs $5 per unit Fixed costs $173,000 Maintenance 52,000 Other operating and administration costs 150,000 Total fixed costs $375,000 The capital invested is $900,000. The target return on investment is 25%. CCC plans to price the unit at full cost plus a markup on full cost to earn the target return on investment. Required 1. What price should CCC charge for a unit? What is the markup as a percentage of the full cost of a unit? 2. CCC’s market research indicates that if the price of a unit determined in requirement 1 is reduced by 10%, the expected number of units CCC could sell would increase by 10%. Should CCCC reduce prices by 10%? Show your calculations.
CCC Company produce 15,000 units. It estimates the following operating costs for next year:
Variable operating costs $5 per unit
Fixed costs $173,000
Maintenance 52,000
Other operating and administration costs 150,000
Total fixed costs $375,000
The capital invested is $900,000. The target return on investment is 25%. CCC plans to price the unit at full cost plus a markup on full cost to earn the target return on investment.
Required
1. What price should CCC charge for a unit? What is the markup as a percentage of the full cost of a unit?
2. CCC’s
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