Product Pricing: TWo Products Quality Data manufactures two products, CDs and DV

Question

Product Pricing: TWo Products Quality Data manufactures two products, CDs and DVDs, both on the same assembly lines and packaged 10 disks per pack. The predicted sales are 400,000 packs of CDs and 500,000 packs of DVDs. The predicted costs for the year 2009 are as follows: Variable Fixed Costs Costs Materials $200,000 $600,000 Other 150,000 700,000 Each product uses 50 percent of the materials costs. Based on manufacturing time, 40 percent of the other costs are assigned to the CDs, and 60 percent of the other costs are assigned to the DVDs. The management of Quality Data desires an annual profit of $50,000. (a) What price should Quality Data charge for each disk pack if management believes the DVDs sell for 20 percent more than the CDs? Rounds answers to the nearest cent. CDs $ DVDs $ (b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate. CDs $ DVDs$

Explanation / Answer

CDs DVDs Packs sold 4,00,000 5,00,000 Varible costs      Material 100000 100000     Other 60000 90000 Total Varible costs 160000 190000 Fixed costs      Material 300000 300000     Other 280000 280000 Total Fixed costs 580000 580000 Total costs 740000 770000 If price of CD is x, the price of DVD should be 1.2x 400.000x + 500,000 1.2x =740000+770000+50000 1,000,000x 1560000 x $1.56 (a) Selling price of     CDs $1.56     DVDs $1.87 (b) CDs DVDs sales $6,24,000 $9,36,000 Less: Costs $7,40,000 $7,70,000 Profit -$1,16,000 $1,66,000

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