8-1 roduct Pricing: Single Product Presented is the 2014 contribution income sta
ID: 2479451 • Letter: 8
Question
8-1
roduct Pricing: Single Product
Presented is the 2014 contribution income statement of Colgate Products.
During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $35,000.
(a) If sales for 2015 remain at 13,000 units, what price should Colgate charge to obtain the same profit as last year? Round to the nearest cent.
$Answer
(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $107. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.
Answer
(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $167,000 with a unit selling price of $107? Round to the nearest unit.
Answer
Contribution Income Statement
For Year Ended December 31, 2014 Sales (13,000 units) $ 1,560,000 Less variable costs Cost of goods sold $ 520,000 Selling and administrative 143,000 (663,000) Contribution margin 897,000 Less fixed costs Manufacturing overhead 520,000 Selling and administrative 210,000 (730,000) Net income $ 167,000
Explanation / Answer
Answer:(a) Price=1699000/13000=131
Answer:(b)
Answer:(c)
Sale volume=Fixed cost+Desired profit/Contribution per unit
=765000+167000/(107-59)
=19417 units
COLGATE PRODUCTS Contribution Income Statement Sales (13,000 units) $1,699,000 Less variable costs Increase in variable cost (13000*8) 104000 Cost of goods sold $520,000 Selling and administrative 143,000 767,000 Contribution margin 932,000 Less fixed costs Increase in fixed manufacturing cost 35000 Manufacturing overhead 520,000 Selling and administrative 210,000 765,000 Net income $167,000Related Questions
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