Woodridge Corporation manufactures numerous products, one of which is called Alp

ID: 2526110 • Letter: W

Question

Woodridge Corporation manufactures numerous products, one of which is called Alpha-32. The company has provided the following data about this product:

Management is considering increasing the price of Alpha-32 by 6%, from $75.00 to $79.50. The company’s marketing managers estimate that this price hike would decrease unit sales by 5%, from 97,000 units to 92,150 units.Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha-32 earn at a price of $79.50 if this sales forecast is correct?

The management of Giammarino Corporation is considering introducing a new product--a compact barbecue. At a selling price of $90 per unit, management projects sales of 10,000 units. Launching the barbecue as a new product would require an investment of $60,000. The desired return on investment is 10%. The target cost per barbecue is closest to:

Unit sales (a) 97,000 Selling price per unit $ 75.00 Variable cost per unit $ 60.00 Traceable fixed expense $ 1,304,000

Explanation / Answer

Answers

New Sale price

$79.5

(-) variable cost per unit

$60

Unit Contribution

$19.5

Unit Sold at increased prices

92,150

Total contribution margin [92150 x $19.5]

$1,796,925

(-) traceable fixed expense

$1,304,000

Net operating income at increased sale price of $79.5

$492,925

Working

Investment

$60,000

ROI rate

10%

Desired Net operating income [60000 x 10%]

$6,000

Answer

Expected Sales revenue [10000 units x $90]

$900,000

(-) Desired Net Income

$6000

Expected total cost

$894,000

Number of barbecue

10000

Target cost per barbecue [894000 / 10000]

$89.4