Mary Williams, owner of Williams Products, is evaluating whether to introduce a

Question

Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment. Williams estimates the variable costs of each unit produced and sold at $9 and the fixed costs per year at $60,000

b. Williams forecasts sales of 13,000 units for the first year if the selling price is set at $22.00 each. What would be the total contribution to profits from this new product during the first year?

Explanation / Answer

Given Variable cost (VC) = $ 9 per unit

Fixed cost (FC) = $ 60,000

Forecasted demand (Q)= 13,000 units

Selling price (SP) = $22 each

Contribution to Profit = Total Revenue-Total Cost = SP(Q)-[FC+VC(Q)]

   = 13000*22 - [60,000 + 9* 13,000]

   = 2,86000 - 1,77,000

= 1,09,000

1,09,000 is the  total contribution to profits from this new product during the first year

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