Question

Net sales for the year were $600,000 and cost of goods sold was $366,000 for the company’s existing products. A new product is presently under development and will have an expected selling price of not more than $59 per unit in order to remain competitive with similar products in the marketplace.

a. Calculate gross profit and the gross profit ratio for the year.


b. What is the maximum cost per unit that can be incurred to manufacture the new product so that the product can be priced competitively and will not result in a reduction to the company’s gross profit ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Answer: Gross Profit = $234,000, Gross profit ratio = 0.39

Explanation: Gross Profit = sales - cost of goods sold

= $600,000- $366,000

=$234,000

Gross profit ratio

= Gross Profit/sales

= 234,000/600,000

=0.39

B- Maximum cost per unit =

$59 * 0.39

= 23.01

= $23