Question

The Flint Fan Corporation is considering the addition of a new model fan, the F-27, to its current products. The expected cost and revenue data for the F-27 fan are as follows: Annual sales 4,000 units Unit selling price $ 58 Unit variable costs: Production $ 34 Selling $ 4 Avoidable fixed costs per year: Production $20,000 Selling $30,000 Allocated common fixed costs per year $55,000 If the F-27 is added as a new product, it is expected that the contribution margin of other products will drop by $7,000 per year. At what selling price would the new product be just breaking even? Multiple Choice $52.25 per unit $50.50 per unit $55.75 per unit $49.00 per unit

Answer 1

$52.25 per unit

Step-by-step explanation:

The computation of the selling price is shown below:

= (Unit production variable cost + unit selling variable cost) + {(Production fixed cost + selling fixed cost + Contribution margin) ÷ (annual sales units)}

= $34 + $4 + {($20,000+ $30,000 + $7,000) ÷ (4,000 units)}

= $38 + $14.25

= $52.25

We simply add the variable cost, contribution margin, and the fixed cost