Polar Industries makes refrigerators. Polars management wants to market refrigerators to students in dorm rooms and small apartments by making a compact refrigerator. The competition, led by Walmart, prices small refrigerators at $76 each. The production manager at Polar Industries estimates that the small refrigerator could be produced for the following manufacturing costs.
Direct materials $24
Direct labor 10
Manufacturing overhead 8
Total $42
Polar's management wants to make an operating margin of 10 percent (operating margin equals revenues minus manufacturing costs).
Suppose Polar uses cost-plus pricing, setting the price to manufacturing costs plus 10 percent of manufacturing costs, What price should it charge for the refrigerator?
