texas has just passed a law making it mandatory to have every head of cattle inspect 544899
Pricing a Service
E 6. Texas has just passed a law making it mandatory to have every head of cattle inspected at least once a year for a variety of communicable diseases. Big Springs Enterprises is considering entering this inspection business. After extensive studies, Tex Autry, the owner of Big Springs Enterprises, has developed the following annual projections:
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texas has just passed a law making it mandatory to have every head of cattle inspect 544899
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|
Direct service labor |
$525,000 |
|
Variable service overhead costs |
250,000 |
|
Fixed service overhead costs |
225,000 |
|
Selling expenses |
142,500 |
|
General and administrative expenses |
157,500 |
|
Minimum desired profit |
120,000 |
|
Cost of assets employed |
750,000 |
Autry believes his company could inspect 250,000 head of cattle per year. On average, the company now earns a 16 percent return on assets.
1. Compute the projected cost of inspecting each head of cattle.
2. Determine the price to charge for inspecting each head of cattle. Use gross margin pricing.
3. Using return on assets pricing, compute the unit price to charge for this inspection service.
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