The state of Ohio has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anson Enterprises is considering entering into this type of business. After extensive studies, Mark Anson has developed the following set of projected annual data on which to make his decision: Direct service labor $363,000.00 Variable service overhead costs 270,000.00 Fixed
service overhead costs 280,000.00 Marketing expenses 120,000.00 General and administrative expenses 170,000.00 Minimum profit 90,000.00 Cost of assets employed 500,000.00 Anson believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets. The price to be charged for inspecting each automobile using the return on assets pricing method would be calculated as
A) ($913,000.00 ÷ 100,000 ) + {($913,000.00 ÷ 100,000 ) x [($90,000 + $290,000 ) ÷ $913,000.00]}.
B) ($1,203,000.00 ÷ 100,000 ) + [($1,203,000.00 ÷ 100,000 ) x ($90,000 ÷ $1,203,000.00)].
C) ($1,203,000.00 ÷ 100,000 ) + [($500,000 ÷ 100,000 ) x 0.1875].
D) none of these options.
C
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