Ragtown Grill uses cost-plus pricing with a 40% mark-up. The company is currently selling 20,000 units annually, but has a capacity of 30,000 units. Each unit has a variable cost of $15. In addition, the company incurs $60,000 in fixed costs annually. For how much is the company selling each unit?

Selling price 25.20

Explanation:

We will distirbute the fixed cost among the current used capacity of the plant which is 20,000 units

The company has to produce 30,000 units in order to distribute the fixed cost among ther maximum capacity of 30,000

Variable cot per unit: $15

Fixed cost per unit 60,000 / 20,000 = $3

Total cost $18

Mark up of 40% of the total cost:

18 x 40% = $ 7.20 margin

Selling price per unit:

$18 cost + $7.20 margin = $ 25.20