7. A company produces 1,000 packages of chicken feed per month. The sales price is $6.00 per pack. Variable cost is $1.60 per unit, and fixed costs are $1,700 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from $1.60 to $1.90 per unit, and fixed costs will increase by 20%. The CEO wants to price the new product at a level that will bring operating income up to $4,000 per month. What sales price should be charged? (Round your answer to the nearest cent.)
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
7. A company produces
packages of chicken feed per month. The sales price is
per pack. Variable cost is
per unit, and fixed costs are
per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from
to
per unit, and fixed costs will increase by
The CEO wants to price the new product at a level that will bring operating income up to
per month. What sales price should be charged? (Round your answer to the nearest cent.)
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