Product Pricing: Two Products Quality Data manufactures two products, CDs and DV
ID: 2737692 • Letter: P
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 Costs Fixed Costs Materials $200,000 $500,000 Other 150,000 600,000 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? Round answers to the nearest cent. CDs $Answer DVDs $Answer (b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate. CDs $Answer DVDs $Answer
Explanation / Answer
A) material cost = variable cost + fixed cost = $200,000 + $500,000=$700,000
Other cost = variable cost + fixed cost = $150,000+ $600,000 = $750,000
material cost for CDs = .50 * 700,000 = $350,000
other cost for CDs = .40 * 750,000 = $300,000
total cost for CDs = $350,000 + $300,000 = $650,000
material cost for DVDs = .50 * 700,000 = $350,000
Other cost for DVDs = .60 * 750,000 = $450,000
total cost for DVDs = $350,000 + $450,000= $800,000
Total cost for CDs and DVDs = $650,000 + $800,000 = $1,450,000
Annual profit $50,000
Total sales revenue = $1,450,000+$50,000= $1,500,000
Let price for the CDs = X so the price for DVDs = X + .20 * X = 1.2 X
So 400,000 * X + 500,000 * 1.2 X = $1,500,000
1,000,000 X = $1,500,000 , X = $1.5
Sale price of CDs = $1.5
Sale price of DVDs = $1.5 + 1.5 * .20 = $1.8
b) Sale revenue for CDs = $1.5 * 400,000 = $600,000
Sale revenue for DVDs = $1.8 * 500,000 = $900,000
particulars CDs DVDs
sales revenue $600,000 $900,000
less Total cost $650,000 $800,000
Total Profit/ Loss -$50,000 $100,000
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