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Using the ABC approach to pricing and the following information, calculate the price of the following...

Using the ABC approach to pricing and the following information, calculate the price of the following entrée:

  • ABC cost: $12.00
  • Tax rate: 15%
  • Desired profit margin: 10%
Business   Accounting   
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Answer #1

In order to get the desired profit of 10% with after tax rate of 15%, the Company has to basically maintain =((10/(1-0.15)) = 11.7647% of pre tax profit. This means to earn the after tax profit of 10% the Company has to maintain an overall margin of 11.7647% pre-tax.

The Cost of the product as given in the problem is $12

Let's take 100 as the selling price. Then cost of the product should be (100 - 11.7647) = 88.2353

Therefore Selling Price = $12/0.882353 = $13.60

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