Question

Newton Company currently produces and sells 5,000 units of a product that has a contribution margin of $6 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $40,000. The company is considering investing in new technology that would decrease the variable cost per unit to $9 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 10,000 units of product. What sales price would have to be charged to earn a $90,000 target profit assuming the investment in technology is made

Answer 1

26

Step-by-step explanation:

The computation of sales price is shown below:-

Particulars Amount

New Fixed Costs $80,000

($40,000 × 2)

Variable Cost per unit $9

Total variable cost on 10,000 Units $90,000

(10,000 × $9)

Total cost $170,000

Profit desired $90,000

Sales $260,000

Number of units 10,000

sales price per unit $26

For computing the sales price per unit we simply divide the number of units by sales price per unit.