Price Determination
E 5. Turley Industries has just patented a new toothpaste called Sparkle for lasting protection against tooth decay. The company’s controller has developed the following annual information for use in price determination meetings:
| Variable production costs | $ 900,000 |
| Fixed overhead | 500,000 |
| Selling expenses | 200,000 |
| General and administrative expenses | 125,000 |
| Desired profit | 375,000 |
| Cost of assets employed | 1,000,000 |
Annual demand for the product is expected to be 500,000 tubes. On average, the company now earns an 8 percent return on assets.
1. Compute the projected unit cost for one tube of Sparkle.
2. Using gross margin pricing, compute the markup percentage and selling price for one tube.
3. Using return on assets pricing, compute the unit price for one tube.
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