Question

In: Finance

Product X is selling for $40/unit. Its variable costs are $20/unit. Fixed costs associated with this...

Product X is selling for $40/unit. Its variable costs are $20/unit. Fixed costs associated with this product are $300,000/year. The company expects to sell 250,000 of Product X a year.

  1. What is the current annual profit of Product X?
  2. What is the breakeven point in units for Product X?
  3. Suppose the company decides it wants to charge a 20% markup on cost. What would the target return price of Product X be?
  4. The company decides not to change the price of Product X to the price calculated in #3 and keeps the $40/unit. But in response to competition, the price of Product X drops to $36 and the company sells 260,000 units that year. Calculate the price elasticity of demand based on the original price and data and the latest price and data.

Solutions

Expert Solution

Solution:

The selling price of the product = $40 / unit

variable cost = $20 / unit

Fixed cost = $300,000 / year

Quantity sold = 250,000

Part A ) The current annual profit of Product X

Part B )

The breakeven point is the point where there is no profit and no loss.

Suppose Q is the breakeven quantity.

Part C )

Total cost when the quantity produced is 250,000

Total cost = $20*250,000 + 300,000 = 5,300,000

Markup of 20% over it = 5,300,000 * (1.20) = 6,360,000

Now in order to earn $4,700,000 profit, the price should be

4,700,000 = 250,000 * P - 6360000

P = 11060000 / 250000 = $44.24

Part D )

% chnage in quantity = 10,000 / 250,000 = 0.04

% chnage in price = 4/40 = -0.1

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

if fixed costs are $728,400, the unit selling price is $42, and the unit variable costs...
if fixed costs are $728,400, the unit selling price is $42, and the unit variable costs are $27, what is the break-even sales (units) if target profits are increased by $330,930? A) 26,498 B) 22,062 C) 48,560 D) 70,622 if the contribution margin ratio for 4 Zsons Company is 30%, sales were $843,000 and fixed costs were $113,295, what was the income from operations? A) 252,900 B) 139,605 C) 158,200 D) 377,650 Period Costs: A) are expensed as costs are...
If fixed costs are $247,000, the unit selling price is $116, and the unit variable costs...
If fixed costs are $247,000, the unit selling price is $116, and the unit variable costs are $73, what are the break-even sales in units (rounded to a whole number)?
20-Spice Inc.'s unit selling price is $54, unit variable costs are $33, fixed costs are $120,000,...
20-Spice Inc.'s unit selling price is $54, unit variable costs are $33, fixed costs are $120,000, and current sales are 9,300 units. How much will operating income change if sales increase by 5,500 units? 30 The contribution margin ratio is the a.same as the variable cost ratio b.portion of equity contributed by stockholders c.same as the profit-volume ratio d.same as profit
Currently, the unit selling price of a product is $310, the unit variable cost is $250, and the total fixed costs are $918,000.
  Currently, the unit selling price of a product is $310, the unit variable cost is $250, and the total fixed costs are $918,000. A proposal is being evaluated to increase the unit selling price to $340. a. Compute the current break-even sales (units).units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.units Break-Even Sales and Sales to Realize Income from Operations For the current year ended October 31,...
19) If fixed costs are $274,000, the unit selling price is $124, and the unit variable...
19) If fixed costs are $274,000, the unit selling price is $124, and the unit variable costs are $79, the break-even sales (units) is a.3,468 units b.1,350 units c.6,089 units d.2,210 units 18) Strait Co. manufactures office furniture. During the most productive month of the year, 3,400 desks were manufactured at a total cost of $83,000. In the month of lowest production, the company made 1,140 desks at a cost of $64,400. Using the high-low method of cost estimation, total...
A company has a selling price of $20 a unit, variable costs of $10 a unit,...
A company has a selling price of $20 a unit, variable costs of $10 a unit, and fixed costs of $40,000. A.What is the breakeven point in dollar sales? B.What quantity must be sold to earn a profit of $60,000? C.What is the Firm’s total contribution margin at breakeven? D.How much revenue is needed to make an aftertax profit of $120,000? Assume a tax rate of 40%. E.Assume the company sells 12,000 units and the total contribution margin increases by...
- XYZ Company sells its only product for $40 per unit. Its total fixed costs are...
- XYZ Company sells its only product for $40 per unit. Its total fixed costs are $180,000 per annum. Its CM ratio is 20%. XYZ plans to sell 16,000 units this year. Required: 1. Calculate CM per unit and the variable cost per unit. 2. Calculate break-even point in unit sales and in dollar sales? 3. Calculate the unit sales and dollar sales required to achieve a target profit of $60,000 per year? 4. Assume that the company is able...
Variable Direct Costs Machine Hours Fixed Production Costs Fixed Overhead Costs Units Sold Unit Selling price...
Variable Direct Costs Machine Hours Fixed Production Costs Fixed Overhead Costs Units Sold Unit Selling price Machine Hours per Unit Total Sales Dollars Variable Cost per Unit Total Contribution Dollars Contribution Dollars per Unit Contribution Margin Percentage Item #1 $65,000 10000 $25,000 $2,000 22500 $10 Item #2 $55,000 20000 $22,000 $2,500 23000 $8 Item #3 $42,000 7500 $15,000 $1,750 27500 $7 Item #4 $27,000 5000 $5,000 $500 11000 $6 Complete the grey cells in the above table Which product would...
Variable Direct Costs Machine Hours Fixed Production Costs Fixed Overhead Costs Units Sold Unit Selling price...
Variable Direct Costs Machine Hours Fixed Production Costs Fixed Overhead Costs Units Sold Unit Selling price Machine Hours per Unit Total Sales Dollars Variable Cost per Unit Total Contribution Dollars Contribution Dollars per Unit Contribution Margin Percentage Item #1 $65,000 10000 $25,000 $2,000 22500 $10 Item #2 $55,000 20000 $22,000 $2,500 23000 $8 Item #3 $42,000 7500 $15,000 $1,750 27500 $7 Item #4 $27,000 5000 $5,000 $500 11000 $6 Complete the grey cells in the above table Which product would...
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs:...
Given the following information: Selling Price (per unit): $10,000 Variable Costs (per unit): $7,000 Fixed Costs: $200,000 Required Each of these are separate situations: What is the break-even point in total sales in dollars? How many units need to be sold to make a profit of $20,000? How many units need to be sold to make a profit of $20,000 if fixed costs increase from $200,000 to $250,000? How many units would they need to sell if they wanted to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT