Problem:
Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment. Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000
Required:
Question 1) If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both graphic and algebraic approach to get your answer.
Question 2) Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14.00 each. What would be the total contribution to profits from this new product during the first year?
Question 3) If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater total contribution to profits?
Question 4) What other considerations would be crucial to the final decision about making and marketing the new product?
Solve the given numerical problem and illustrate step by step calculation.