Print by: Liliana Salazar I8SP ACC12312A:18SP ACC12312A Prin of Acct I1 /CH 8 HW

Question

Print by: Liliana Salazar I8SP ACC12312A:18SP ACC12312A Prin of Acct I1 /CH 8 HW Problem 8-8 Walla Walla Ventures is considering producing a new line of hang gliders. The company estimates that variable costs will be $470 per unit and fixed costs will be $368,000 per year Walla Walla has a pricing policy that dictates that a product's price must be equal to full cost plus 30 percent. To caloulate full cost, Walla Walla must estimate the number of units it will produce and sell in a year. At the beginning of the year, Walla Walla estimates that it will sell 1,600 gliders and sets its price according to that sales and production volume. What is the price? Price Right after the beginning of the year, the economy takes a dive and Walla Walla finds that demand for their gliders has fallen drastically. Walla wala revises its sales and Revised price What is likely to happen to the number of oliders sold if walla Woll follows company policy and raises the gleder price to that calculatedim part b? Question Attempts: 0 of 5 used 3/2018 O Type here to search

Explanation / Answer

Solution a:

Total cost of 1600 gliders = 1600*$470 + $368,000 = $1,120,000

cost per unit of glider= $1,120,000 / 1600 = $700 per unit

Selling price = Cost + 30% = $700 + $700*30% = $910 per glider

Solution b:

Total cost of 1000 gliders = 1000*$470 + $368,000 = $838,000

Cost per unit = $838000/1000 = $838

Revised selling price as per new estimate = $838*130% = $1,089.40

Solution c:

If Walla walla follow company policy and raises the glider price then demand of gliders will be reduced. As price increases, demand of product decreases. If price decreases, demand of product increases.

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