M21-18: Product Pricing: Single Product
Assume that you plan to open a soft ice cream franchise in a resort community during the summer months. Fixed operating costs for the three-month period are projected to be $9,080. Variable costs per serving include the cost of the ice cream and cone, $0.75, and a franchise fee payable to Austrian Ice, AG, $0.23. A market analysis prepared by Austrian Ice indicates that summer sales in the resort community should total 24,000 units.
Required:
Determine the price you should charge for each ice cream cone to achieve $25,000 profit for the three-month period. Please show all work.
Fixed cost = $9,080
cost of ice cream and cone = $0.75
Franchise fee = $0.23
Variable cost per unit = cost of ice cream and cone + Franchise fee
= 0.75+0.23
= $0.98
Let selling price per unit = $K
sales unit = 24,000 units
Target profit = $25,000
Target profit = Sales - Variable cost - Fixed cost
25,000 = 24,000K - 24,000 x 0.98 - 9,080
25,000 = 24,000K-23,520-9,080
K = $2.4
Hence, selling price to be charged = $2.4
Kindly comment if you need further assistance. Thanks‼!
M21-18: Product Pricing: Single Product Assume that you plan to open a soft ice cream franchise...