A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produ... Accounting MCQs | Accounting MCQs

A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produce and sell only 500,000 boxes in the coming year. The costs to manufacture and distribute the candy are detailed below. The organization has invested capital of $6,750,000.

Variable costs per pound:

Manufacturing

$4.85

Packaging

0.35

Distribution

1.80

Total

7.00

Annual fixed costs:

Manufacturing overhead

$810,000

Marketing and distribution

270,000

The selling price per pound that the confectioner should charge for a one-pound box of candy to obtain a 20% rate of return on invested capital is

$9.70$11.05$11.50$11.86Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The company expects to incur variable costs of $3,500,000 (500,000 lbs. × $7) and fixed costs of $1,080,000 ($810,000 + $270,000). To earn a 20% return on invested capital ($6,750,000 × 20% = $1,350,000), the company must charge a price of $11.86 [($3,500,000 + $1,080,000 + $1,350,000) ÷ 500,000].