data for the new product are as follows: Annual sales Selling price per unit Var

Question

data for the new product are as follows: Annual sales Selling price per unit Variable costs per unit: 2,500 units $ 304 Production Selling $ 125 $ 49 Avoidable fixed costs per year: Production Selling $50,000 $75,000 $55,000 Allocated common fixed corporate costs per year If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. At what selling price would the new product be just breaking even?

Explanation / Answer

Units 2500 Variable cost $435000 (125+49)*2500 Fixed cost $125000 (75000+50000) Selling Price per unit 0 = 2500x-435000-125000 2500x=560000 x =$ 224

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