Henderson Products is a price-setter that uses the cost-plus pricing approach

The products are specialty components used in industrial equipment. The CEO is certain that the company can produce and sell 500,000 units per year, due to the high demand for the product. Variable costs are $3.25 per unit. Total fixed costs are $860,000 per year. The target operating income for the year is $150,000. What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to nearest cent.) Show all computations.
What will be an ideal response

Variable cost = Units x Variable cost per unit
500,000 x $3.25 = $1,625,000
Target revenue = Operating income + Variable costs + Fixed costs
$150,000 + $1,625,000 + 860,000 = $2,635,000
Sales price to be charged = Target revenue / Units
$2,635,000 / 500,000 = $5.27