Jake Black Has an Opportunity to Start an Automobile Pollution

Essay

Jake Black has an opportunity to start an automobile pollution inspection business.After extensive studies,he has developed the following set of projected annual data on which to make his decision:
$\begin{array}{lr}\text { Direct service labor } & \$ 330,000 \\\text { Variable service overhead costs } & 260,000 \\\text { Fixed service overhead costs } & 250,000 \\\text { Selling expenses } & 160,000 \\\text { General and administrative expenses } & 200,000 \\\text { Desired profit } & 102,000 \\\text { Cost of assets employed } & 600,000\end{array}$
Black believes that his company will inspect 100,000 automobiles per year.The company earns an average of 20 percent return on its assets.
a. Compute the projected cost for inspecting each automobile.
b. Determine the price to charge for inspecting each automobile using the gross margin pricing method.
c. Using the return on assets pricing method, compute the unit price to charge for this service.