Net sales for the year were $450,000 and cost of goods sold was $261,000 for the

Question

Net sales for the year were $450,000 and cost of goods sold was $261,000 for the company’s existing products. A new product is presently under development and will have an expected selling price of not more than $56 per unit in order to remain competitive with similar products in the marketplace.

What is the maximum cost per unit that can be incurred to manufacture the new product so that the product can be priced competitively and will not result in a reduction to the company’s gross profit ratio?(Do not round intermediate calculations and round your final answer to 2 decimal places.)

Calculate gross profit and the gross profit ratio for the year.

Explanation / Answer

Sales

Gross profit ratio =Gross pRofit/Sales =189000/450000 =42%

What is the maximum cost per unit that can be incurred to manufacture the new product so that the product can be priced competitively and will not result in a reduction to the company’s gross profit ratio?(

Cost = 58% of sales(100-42)

hence cost per 56*.58 =32.48

Sales

450000 Cost Of Goods sold 261000 Gross profit 189000

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