Sue Bee Honey is one of the largest processors of its product for the retail mar

Question

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 $16,800,000, of which $6,300,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $42 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 $10,500,000, what is the selling price per case? Round answer to two decimal places.

Explanation / Answer

Ans) Total sales units for the year = 800000 cases
Total annual fixed costs = $ 16,800,000
Let the Selling price be 'x'.
Variable processing cost = $42 per case
Variable Selling expenses = 25% of 'x' i.e 0.25x
Contribution per unit = x-42-0.25x = 0.75x - 42
Total Contribution for 800000 cases = (0.75x - 42)*800,000 = 600,000x - 33,600,000

Profit = $10,500,000, which must be equal to : 600,000x - 33,600,000 -16,800,000
Solving equation 10,500,000 = 600,000x - 33,600,000 - 16,800,000
60,900,000 = 600,000x
then x = 101.5   i.e selling price is $101.5

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