Question

If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. At what selling price would the new product be just breaking even

Answer 1

$250

Step-by-step explanation:

Note: The full question has been attached as picture below

Particulars Amount Amount

Variable cost:

Production ($125*2500) $312,500

Selling ($49*2500) $122,500 $435,000

Avoidable Fixed cost:

Production $50,000

Selling $75,000 $125,000

Contribution lost for existing product $65,000

$625,000

/ Annual sales in units 2,500 units

Break Even Selling Price $250