Question

A proposal for implementing a new product line has an annual fixed cost of $60,000, variable cost of $35 per unit of output, and revenue (selling price) of $55 per unit of output. What selling price would be necessary to generate an annual profit of $90,000, if expected volume is 6,000 units per year (assume fixed costs remain at $60,000, and variable cost per unit at $35)

Answer 1

$60.00

Step-by-step explanation:

Remember that, Selling Price - Cost of Sales = Profit.

Therefore,

Selling Price = Profit + Cost of Sales

Calculation of Selling Price will be :

Annual Profit ($90,000/6,000 units) $15.00

Fixed Costs ($60,000/6,000 units) $10.00

Variable Costs $35.00

Total $60.00

Conclusion :

Therefore, the price of $60.00 would be necessary to generate an annual profit of $90,000.