Problem - Product Pricing: Single Product
Presented is the 2009 contribution income statement of Colgate Products.
|
Sales (12,000 units)
|
|
$1,440,000
|
|
Less variable costs
|
|
|
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Cost of goods sold
|
$480,000
|
|
|
Selling and administrative
|
132,000
|
(612,000)
|
|
Contribution margin
|
|
828,000
|
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Less fixed costs
|
|
|
|
Manufacturing overhead
|
530,000
|
|
|
Selling and administrative
|
200,000
|
(730,000)
|
|
Net income
|
|
$98,000
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During the coming year, Colgate expects an increase in variable manufacturing costs of $6 per unit and in fixed manufacturing costs of $48,000.
(a) If sales for 2010 remain at 12,000 units, what price should Colgate charge to obtain the same profit as last year?
(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $105. 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 $98,000 with a unit selling price of $105?