Question

Newton Company currently produces and sells 15,000 units of a product that has a contribution margin of $7 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $38,000. The company is considering investing in new technology that would decrease the variable cost per unit to $14 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 29,000 units of product. What sales price would have to be charged to earn a $98,000 target profit assuming the investment in technology is made?

Answer 1

Sales Price = $20

Step-by-step explanation:

New Technology:

Contribution Margin: $9 per unit ($23 - $14)

Total Fixed Cost: $76,000

Units of production and sales: 29,000

Profits = (Sell Price - Unit cost) x Total Units - Fixed Cost

Sell Price = (Profits + Fixed Cost)/Total Units + Unit Cost

Sell Price: ($98,000 + $76,000) / 29,000 + $14 = $20