Question

Your next task is to provide a pricing recommendation for the bookshelf system. The product comes with five equal-length finished walnut shelves and the hardware to hang the shelves. When assembled, the shelves look like they are floating on the wall. The product strategy team suggests taking into consideration the break-even point in determining the bookshelf system's price. You ask Conner about expectations around this product. He says, "The bookshelf system is a popular item. I expect around 2,500 units to be sold this year." Production informs you that the variable costs are $50/unit. Fixed costs are $150,000. What price point do you recommend for the bookshelf system

Answer 1

Step-by-step explanation:

To determine price point:

Estimate the number of units of product expected to sell over the next year then divide your revenue target by the number of units you expect to sell and you have the price at which you need to sell your product in order to achieve your profit target.

Given:

Number of units expected to sell = 2500 units

Variable costs, Cv = $50/unit

Fixed costs, Cf = $150,000

Cost per unit, C = 150000/2500

= $60 per unit

Price point = variable cost + cost per unit

= $60 + $50

= $110

Recommended $110 for the price of the bookshelf system.

Answer 2

Sales Price Per Unit = $ 110

Step-by-step explanation:

Break Even Sales Volume in Dollars =

Break Even Sales Volume in Dollars= Fixed Costs/ 1- (variable Costs/ Sales)

Break Even Sales Volume in Units = Fixed Costs/ Contribution Margin per Unit

On Rearranging the above given formula

Contribution Margin per Unit = Fixed Costs/ Break Even Sales Units

Sales Price per Unit - Variable Price Per unit =$150,000/2500

Sales Price Per Unit - $ 50= 60

Sales Price Per Unit = 60+ 50= $ 110