Product Pricing: Single Product Presented is the 2014 contribution income statem

Question

Product Pricing: Single Product
Presented is the 2014 contribution income statement of Colgate Products.

During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $35,000.

(a) If sales for 2015 remain at 13,000 units, what price should Colgate charge to obtain the same profit as last year? Round to the nearest cent.
$Answer

(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $107. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.
Answer

(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $167,000 with a unit selling price of $107? Round to the nearest unit.
Answer

COLGATE PRODUCTS
Contribution Income Statement
For Year Ended December 31, 2014 Sales (13,000 units) $ 1,560,000 Less variable costs Cost of goods sold $ 520,000 Selling and administrative 143,000 (663,000) Contribution margin 897,000 Less fixed costs Manufacturing overhead 520,000 Selling and administrative 210,000 (730,000) Net income $ 167,000

Explanation / Answer

or 19417 units

Statement showing computations Particulars Amount Fixed Costs: Fixed Manu O/H = 520000 + 35000           555,000.00 Fixed selling and admin           210,000.00 Total fixed Costs           765,000.00 Income desired           167,000.00 Contribution desired = 765,000 + 167,000           932,000.00 Cont per unit desired = 932,000/13,000                      71.69 COGS per unit= 520,000/13,000 + 8                      48.00 Selling and admin per uit = 143,000/13,000                      11.00 Variable costs per unit                      59.00 Selling price per unit = 59 + 71.69                   130.69 b) Sales Value = 16,000*107       1,712,000.00 Variable Costs= 16,000*59           944,000.00 Contribution           768,000.00 Fixed Costs           765,000.00 Income                3,000.00 c) Fixed Costs: Fixed Manu O/H = 520000 + 35000           555,000.00 Fixed selling and admin           210,000.00 Total fixed Costs           765,000.00 Income desired           167,000.00 Contribution desired = 765,000 + 167,000           932,000.00 Selling price per unit                   107.00 Variable cost per unit                      59.00 Cont per unit                      48.00 No of units = 932,000/48             19,416.67

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