Question

Cost-Based Pricing and Markups with Variable Costs Compu Services provides computerized inventory consulting. The office and computer expenses are $600,000 annually and are not assigned to specific jobs. The consulting hours available for the year total 20,000, and the average consulting hour has $30 of variable costs. (a) If the company desires a profit of $160,000, what should it charge per hour?

Answer 1

Answer:

$68 per hour

Explanation:

Profit = Revenue - Variable Costs - Fixed Costs.

Where, Revenue = Quantity * Selling price per unit  ; Variable Costs = Quantity * Variable Cost per unit

Profit= 160,000

Revenue= 20,000 * x  

Variable Costs = 20,000 * 30

Fixed Costs  = 600,000

Let, the cost per hour be x

160,000 = 20,000x - (20,000*30) - $600,000

160,000 + 600,000 + 600,000 = 20,000x

20,000x = 1,360,000

x= 1,360,000  / 20,000

x = 68

X= $68 per hour

Conclusion: The charge per hour should be $69 for a desired profit of $160,000