3. Projected cost information for a new product to be produced by Kolier Manufac
ID: 2600665 • Letter: 3
Question
3. Projected cost information for a new product to be produced by Kolier Manufacturing is as follows: Expected variable unit costs: Direct materials Direct labor Overhead Selling costs $10.90 7.18 1.92 4.00 Annual fixed costs: Taxes on property used Depreciation on building and equipment Advertising $ 8,870 18,920 38,840 2,070 Other The product is to be sold for $49, a. Compute the number of units that must be sold to carn a profit of $80,000, b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained. c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.Explanation / Answer
a. Number of units that must be sold = (Total fixed costs + Target Profit) / Contribution per unit = ($68700 + $80000) / $25 = $148700 / $25 = 5948 units
Total fixed costs = $8870 + $18920 + $38840 + $2070 = $68700
Contribution per unit = Sales – Variable costs = $49 – ($10.90 + $7.18 + $1.92 + $4.00) = $49 - $24 = $25
b. Number of units that must be sold = (Total fixed costs + Target Profit) / Contribution per unit = ($80700 + $120000) / $25 = $200700 / $25 = 8028 units
Total fixed costs = $68700 + $12000 = $80700
c. New selling price: $50.87
Total variable costs = 10000 units x $24 = $240000
Total fixed costs = $68700
Target profit = $200000
Total costs + Target profit = $240000 + $68700 + $200000 = $508700
Selling price per unit = $508700 / 10000 units = $50.87
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