EXERCISE 8-10. Cost-Plus Pricing [LO 2] The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 30 percent markup above its full cost. Management estimates that the fixed costs per year will be $210,000, and the variable cost of the storage device will be $15 per unit.

REQUIRED

a. Assuming production and sales of 60,000 units, what is the full cost of a storage device, and what is the price with a 30 percent markup?

b. Assume that the quantity demanded at the price calculated in part a is only 40,000 units and only 40,000 units are produced. What is the full cost of the storage device, and what is the price with a 30 percent markup?

c. Compare the selling prices computed in parts a and b; does the selling price increase, decrease, or stay the same when the number of units produced and sold decreases? Why does this change occur?

E10.

a.

Variable cost per unit

$15.00

Fixed costs per unit

Cost

Markup of 30%

Price

b.

Variable cost per unit

Fixed costs per unit

Cost

Markup of 30%

Price

c.