Product Pricing: Two Products Quality Data manufactures two products, CDs and DV
ID: 2416069 • 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:
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
(b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate.
Explanation / Answer
CDs DVDs Sales In packs 400000 500000 Material Cost - Variable Material Cost In $ 50000 50000 - Fixed Material Cost In $ 300000 300000 Other Cost - Variable other Cost In $ 100000 150000 - Fixed other Cost In $ 360000 540000 Total Variable cost In $ 150000 200000 Total Fixed Cost In $ 660000 840000 Variable cost per unit In $ 0.375 0.40 Answer 1 Profit Margin = Sales - Variable Cost - Fixed Cost Let us assume Sale price of CDs per pack be x and DVDs per pack be 1.2x Hence 50000 = (x*400000) + (1.2x * 500000) - 350000 - 1500000 50000 = 400000x + 600000x - 1850000 1900000 = 1000000x x = $1.9 per pack of CD = Sale price Hence sale price of DVDs = 1.2x = 1.2 * 1.9 = $2.28 per pack of DVD Answer 2 Calculation of profit per product Particulars CDs DVDs sales in $ 760000 1140000 Less : Variable cost in $ 150000 200000 Contribution in $ 610000 940000 Less : Fixed cost in $ 660000 840000 Profit in $ -50000 100000
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