Cost Plus and Target Pricing Problems

Packer Stoves Inc. is designing a commercial style stove for residential use. The team developing the specifications, cost, and pricing decisions includes production, accounting, engineering and marketing.

The stove includes a warming drawer, broiler unit, and high BTU burner. With these special features, Packer Stoves Inc. believes it can sell the stoves for $4,700. Packer Stoves Inc. desires to earn a 25% profit on each stove. Variable costs are $2,900 per stove and fixed costs are $1,800,000.

Download this Excel spreadsheet and use it to present your calculations and answers to the questions below:

  1. Using cost+ pricing calculate the price, given the cost and profit information.
  2. Calculate the Target cost per stove. How many stoves must Packer Inc. sell to meet the target cost?
  3. If Packer decides only 2000 stoves can be sold at $4,700 and, therefore, decides to eliminate the broiler unit thereby saving $650 per stove. With this feature dropped it is estimated that 2,600 units can be sold for $4,000. Will Packer be able to produce the stove at the new target cost?

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