Product Pricing: Single Product Presented is the 2009 contribution income statement of Colgate Products.
COLGATE PRODUCTS
Contribution Income Statement
For Year Ended December 31, 2009
Sales (18,000 units) $2,160,000
Less variable costs
Cost of goods sold$720,000
Selling and administrative198,000(918,000)
Contribution margin 1,242,000
Less fixed costs
Manufacturing overhead770,000
Selling and administrative340,000(1,110,000)
Net income $132,000
During the coming year, Colgate expects an increase in variable manufacturing costs of $6 per unit and in fixed manufacturing costs of $72,000.
(a) If sales for 2010 remain at 18,000 units, what price should Colgate charge to obtain the same profit as last year?
$Answer
(b) Management believes that sales can be increased to 24,000 units if the selling price is lowered to $105. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.
Answer
(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $132,000 with a unit selling price of $105?
Answer units