Question -
Delphi Company has developed a new product that will be marketed for the first time next year. The product will have variable costs of $37 per unit. Although the marketing department estimates that 66,500 units could be sold at $57 per unit, Delphi's management has allocated only enough manufacturing capacity to produce a maximum of 47,500 units a year. The fixed costs associated with the new product are budgeted at $855,000 for the year. Delphi is subject to a 40% tax rate.
Calculate contribution margin per unit.
How many units of the new product must Delphi sell in the next fiscal year to break even?
What is the maximum net income that Delphi can earn from sales of the new product in the next fiscal year?
Delphi's managers have stipulated that they will not authorize production beyond the next fiscal year unless the after-tax profit from the new product is at least $142,500. How many units of the new product must be sold in the next fiscal year to ensure continued production? (Use the rounded contribution margin per unit calcuated in the previous part.)
Regardless of your answer in part (c), assume that more than the allowed production of 47,500 units will be required to meet the $142,500 net income target. Given the production constraint (maximum of 47,500 units available), what price must be charged to meet the target income and continue production past the next fiscal year?