Question

Your boss is so impressed with your answers to the previous questions, he assigns you an additional task of calculating the selling price for a new product. The company expects that a $25,000 profit goal is reasonable for this product if they are able to sell 18,000 units. What is the appropriate selling price for this new product? Remember that you can calculate the contribution by adding fixed costs to the profit goal and then dividing by the total quantity sold. Once you calculate the contribution per unit, you will need to add that value to the variable costs per unit. Use the following information to determine your answer.

Each worker you hire can only handle 2,000 units of product per year. The storage and truck costs must be paid on each of the 18,000 units your boss expects to be sold.

Item	Cost
Product Wholesale Price	$140/unit
Storage Depreciation	$3510
Storage Cost	$16.00/unit
Truck Cost	$6.00/unit
Truck Depreciation	$7,500
Labor	$32,000 per worker
Manager’s Salary	$15,000

Answer 1

We know that the formula for marginal costing is as follows.

Particulars	Amount
Sales	XX
Less - Variable Cost	XX
Contribution	XX
Less - Fixed Cost	XX
Profit	XX

Now let us draft the statement showing all the fixed cost variable cost , contribution and sales as per the data given in the problem.

	Units -18000
Particulars	Amount	Remarks
Sales	3255010
Less - Variable Cost
Raw Material/Product costs	2520000	140*18000
Storage cost	288000	16*18000
Truck Cost	108000	6*18000
Labour	288000	(18000/2000)*32000
Contribution	51010
Less - Fixed Cost
Managers Salary	15000
Truck Depreciation	7500
Storage Depreciation	3510
Profit	25000

Hence the total sale value of 18,000 units will be 3255010
Now the selling price of each unit should be 3255010/18000 = $180.8339

Note - Fixed cost remains constant irrespective of the amount of sale and variable cost changes with change in the units of sale