Making Profit with Lamps: Calculating Selling Price
How can a company determine the selling price of a product to ensure profitability?
Based on the data provided by McKay Company, what is the formula used to calculate the selling price of a lamp?
What percentage is added to the production cost to determine the selling price?
Answer:
The selling price of a product can be determined by adding a certain percentage of profit to the production cost. In the case of McKay Company's lamps, they decided to make the price of their lamps 30% more than the cost to make the lamp.
Based on the given data, the selling price of the lamp would be $47.45.
Calculating the selling price of a product is crucial for any business to ensure profitability. In the case of McKay Company, they have a specific formula to determine the selling price of their lamps. Let's break down the calculation:
Formula to Calculate Selling Price:
Selling Price = Cost of Production + (Profit Percentage x Cost of Production)
In this formula, the Profit Percentage is the additional percentage that is added to the production cost to set the selling price. For McKay Company, the profit percentage is 30%.
Calculation for McKay Company's Lamps:
Given: Cost of Production = $36.50
Profit Percentage = 30%
Using the formula, we can calculate the selling price as follows:
Selling Price = $36.50 + (0.30 x $36.50)
Selling Price = $36.50 + $10.95
Selling Price = $47.45
Therefore, the selling price of McKay Company's lamps would be $47.45, ensuring that they make a profit by adding 30% to the production cost.