Product Pricing: Single Product
Presented is the 2014 contribution income statement of ColgateProducts.
COLGATE PRODUCTS
Contribution Income Statement
For Year Ended December 31, 2014 |
|---|
| Sales (13,000 units) | | $ 1,560,000 |
| Less variable costs | | |
| Cost of goods sold | $ 520,000 | |
| Selling and administrative | 143,000 | (663,000) |
| Contribution margin | | 897,000 |
| Less fixed costs | | |
| Manufacturing overhead | 520,000 | |
| Selling and administrative | 210,000 | (730,000) |
| Net income | | $ 167,000 |
During the coming year, Colgate expects an increase in variablemanufacturing costs of $8 per unit and in fixed manufacturing costsof $35,000.
(a) If sales for 2015 remain at 13,000 units, what price shouldColgate charge to obtain the same profit as last year? Round to thenearest cent.
$Answer
(b) Management believes that sales can be increased to 16,000 unitsif the selling price is lowered to $107. What would be the exceptedprofit (or loss) as a result of this action? Use a negative signwith your answer, if appropriate.
Answer
(c) After considering the expected increases in costs, what salesvolume is needed to earn a profit of $167,000 with a unit sellingprice of $107? Round to the nearest uni
