The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang 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 Anfang 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 gross margin pricing method would be calculated as follows:
a. ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ? ($90,000 ÷ $1,203,000.00)]
b. ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ? 0.1875]
c. ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ? [($90,000 + $290,000) ÷ $913,000.00]}
d. None of these
C
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