A company wants to expand by offering a new product. Expected cost and revenue data for this product are:Annual sales5,000 unitsUnit selling price?Unit variable costs:Production$ 30.20Selling6.Incremental fixed costs per year:32:16Production$35,000Selling$45,000If the company adds this new product, sales of its other product lines will be impacted, causing the contribution margin of other product lines to dropby $18,500 per year. What is the lowest price the company could charge for its new product without affecting the company's total profits?Multiple Choice$39.90$52.20

Solution: Lowest price to be charged by the company is based on the total cost of the new product and contribution lost of the existing products and number of units of new product. Solution: Total cost to be incurred for New product = total manufacturing costs and selling costs = 5000*30.20 + 5000*6 + 35000 + 45000 = 261,000 Lowest price to be charged for new product = (Total costs + contribution margin lost of other products) / units of new product = (261000 +18500) / 5000 = $55.90

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A company wants to expand by offering a new product. Expected Annual sales 5,000 units Unit selling price ? Unit variable costs: $ 30.20 $ 6 Production Selling Incremental fixed costs per year: $35,000 $45,000 Production Selling If the company adds this new product, sales of its other product lines will be impacted, causing the contribution margin of other produ by $18,500 per year. What is the lowest price the company could charge for its new product without affecting the company's total pro

A company wants to expand by offering a new product. Expected Annual sales 5,000 units Unit selling price ? Unit variable costs: $ 30.20 $ 6 Production Selling Incremental fixed costs per year: $35,000 $45,000 Production Selling If the company adds this new product, sales of its other product lines will be impacted, causing the contribution margin of other produ by $18,500 per year. What is the lowest price the company could charge for its new product without affecting the company's total pro

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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