View the step-by-step solution to:

Cost-Plus Pricing Wendel Stove Company is developing a "professional" model stove aimed at the home market.

Cost-Plus Pricing

Wendel Stove Company is developing a “professional” model stove aimed at the home market. The company estimates that variable costs will be $2,000 per unit and fixed costs will be $10,000,000 per year.

Required


a.

Suppose the company wants to set its price equal to full cost plus 30 percent. To determine cost, the company must estimate the number of units it will produce and sell in a year. Suppose the company estimates that it can sell 5,000 units. What price will the company set?

b.

What is “odd” about setting the price based on an estimate of how many units will be sold?

c.

Suppose the company sets a price as in part a, but the number of units demanded at that price turns out to be 4,000. Revise the price in light of demand for 4,000 units.

d.

What will happen to the number of units that will be sold if the price is raised to the one you calculated in part c?

e.

Explain why setting price by marking up cost is inherently circular for a manufacturing firm.
Sign up to view the entire interaction

Top Answer

Dear Student Please find... View the full answer

Finance-8084200.xls

If you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board),
It will show all calculations and formulas Automatically
Please Give Me the...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online