Product Pricing: Single Product
Presented is the 2017 contribution income statement of Grafton Products.
GRAFTON PRODUCTS Contribution Income Statement For Year Ended December 31, 2017
Sales (13,000 units) $ 2,925,000
Less variable costs
Cost of goods sold$ 780,000
Selling and administrative 208,000 (988,000)
Contribution margin 1,937,000
Less fixed costs
Manufacturing overhead 780,000
Selling and administrative 315,000 (1,095,000)
Net income $ 842,000
During the coming year, Grafton expects an increase in variable manufacturing costs of $12 per unit and in fixed manufacturing costs of $39,000.
(a) If sales for 2018 remain at 13,000 units, what price should Grafton charge to obtain the same profit as last year? Round to the nearest cent.
(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $200. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.
(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $254,800 with a unit selling price of $200? Round to the nearest unit.