Question

Answer the question below based on the following scenario:

A company has $1,000,000 in annual sales and the owner pays himself 100% of profits. The cost-of-goods-sold is $900,000. The company manufactures 9,000 units each year. The present defect rate is about 3%. Assume that the price/unit is based on this information and is equal in each of the scenarios.

Also, 1) the cost/unit is calculated by dividing the number of saleable units by the total cost of goods sold and, 2) the price is assumed to remain at the same rate as the units are being sold at in the current situation.

Complete the blank cells and answer the question.

	Current Situation	Alternative Situation #1	Alternative Situation #2
# of Units Produced	9,000		9,000
# of Saleable Units	8,730		8,910
Total Sales	$1,000,000	$1,199,921	$1,020,551
Total Production Cost of Goods Sold	$900,000	$1,080,000	$900,000
Price/Unit	$114.54	$114.54	$114.54
Cost per Unit	$103.09	103.09	$100
Defect Rate	3%	3%	1%
Unsaleable Units	270	324
Net Profit	$100,000

Question:   What is the price per unit taking into account to the defect rate which results in no sale?

		$111.11
		$100
		$114.54
		$103.09

Answer 1

completed blank cells

	Current Situation	Alternative Situation #1	Alternative Situation #2
# of Units Produced	9,000	10800	9,000
# of Saleable Units	8,730	10476	8,910
Total Sales	$1,000,000	$1,199,921	$1,020,551
Total Production Cost of Goods Sold	$900,000	$1,080,000	$900,000
Price/Unit	$114.55	$114.54	$114.54
Cost per Unit	$103.09	$103.09	$101
Defect Rate	3%	3%	1%
Unsaleable Units	270	324	90
Net Profit	$100,000	$119,921	$120,551

Calculations

$111.11 is the price per unit taking into account to the defect rate which results in no sale.

price per unit taking into account to the defect rate which results in no sale = Total sales/no. of units produced = $1,000,000/9,000 = $111.11