Product Pricing: Single Product Sue Bee Honey is one of the largest processors o

Question

Product Pricing: Single Product Sue Bee Honey is one of the largest processors of its product for the retail market. Assume that one of its plants has annual fixed costs totaling $14,400,000, of which $5,400,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $36 per case, and variable selling expenses are 25 percent of selling price. There are no variable administrative expenses. If the company desires a profit of $9,000,000, what is the selling price per case? $ 74.25 | x price per case

Explanation / Answer

Fixed Costs = $14,400,000
Number of units sold = 800,000
Desired Profit = $9,000,000

Number of units sold = (Fixed Costs + Desired Profit) / Contribution Margin per unit
800,000 = ($14,400,000 + $9,000,000) / Contribution Margin per unit
800,000 = $23,400,000 / Contribution Margin per unit
Contribution Margin per unit = $29.25

Variable Processing Cost per unit = $36
Variable Selling Expenses per unit = 25% * Selling Price

Contribution Margin per unit = Selling Price - Variable Processing Cost per unit - Variable Selling Expenses per unit
$29.25 = Selling Price - $36 - 0.25 * Selling Price
$65.25 = 0.75 * Selling Price
Selling Price = $87.00

So, selling price per case is $87.00 to earn the desire profit

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