Soft Industries has just patented a new lotion with lasting sun protection. The company's controller has developed the following annual information for use in price determination meetings:
Variable production costs........................... $ 450,000
Fixed overhead..........................................250,000
Selling expenses........................................100,000
General and administrative expenses................. 75,000
Desired profit.......................................... 315,000
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 lotion.
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 of lotion.