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A price (Selling Price) is the exchange value of a product or service in the marketplace. Most business plans (other than non-profit organizations) include the idea of making a profit. In order to earn a profit, the company must generate revenue that is larger than total costs. The Selling Price of an item is the actual cost to make or produce the item plus the profit that the company makes. When setting a price for a product or service, companies can look at different objectives such as profitability (to maximize profit or to achieve a target profit level), volume (to maximize volume or market share), meeting competition (to remove price as a differentiator by matching competitor prices) and prestige (to create an image of exclusiveness and quality by setting a high price.

Profit = Selling Price Cost

No matter the pricing objective, companies still need to know they are making a profit.

Example: If the price we would be able to sell an item in the market is $100 and the company wants to have a profit of at least 25 percent of the cost, the function would look like this.

.25X = 100 X (where X=Cost)

X+.25X = 100

1.25X = 100

100/1.25 = X

X=$80 Cost = $80, Profit = $20

There are two problems below that you must answer concerning Profit. You must find the Manufacturing Cost and the Company Profit per unit for each question. There is a definite correct answer for these questions. You must show your mathematical calculations for each as I did above in the example. Each question is worth 10 points if correct (5 points for each Manufacturing Cost and 5 points for each Profit per Unit).

1. Sids Skins makes a variety of covers for electronic organizers and portable music players. The companys designers have discovered a market for a new clear plastic covering with college logos for a popular music player. Market research indicates that a cover like this would sell well in the market priced at $21. Sids desires an operating profit of 20 percent of costs.
   1. What is the highest acceptable manufacturing cost for which Sids would be willing to produce the cover? What is the companys profit for each cover using the highest acceptable manufacturing cost? (Remember: Profit = Selling Price Cost) Show your work.

2. Domingo Corporation makes a variety of headphones with logos. The company has discovered a new market for wireless headphones with logos. Market research indicates that these headphones would sell well in the market priced at $149 each. Domingo desires an operating profit of 25 percent of costs.
   1. What is the highest acceptable manufacturing cost for which Domingo would be willing to produce the headphones? What is the companys profit for each set of headphones using the highest acceptable manufacturing cost? Show your work.

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