Question

Product Pricing: Two Products
Quality Data manufactures two products, CDs and DVDs, both on the same assembly lines and packaged 10 disks per pack. The predicted sales are 400,000 packs of CDs and 500,000 packs of DVDs. The predicted costs for the year 2009 are as follows:

	Variable Costs	Fixed Costs
Materials	$200,000	$600,000
Other	350,000	600,000

Each product uses 50 percent of the materials costs. Based on manufacturing time, 40 percent of the other costs are assigned to the CDs, and 60 percent of the other costs are assigned to the DVDs. The management of Quality Data desires an annual profit of $50,000.

(a) What price should Quality Data charge for each disk pack if management believes the DVDs sell for 20 percent more than the CDs? Round answers to the nearest cent.
CDs $Answer
DVDs $Answer

(b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate.
CDs $Answer
DVDs $Answer

Answer 1

a)
	CD	DVDs
Units	400,000.0	500,000.0
Variable Cost
Materials	$ 100,000.00	$    100,000.00
Other	$ 140,000.00	$    210,000.00
Total Variable Cost	$ 240,000.00	$    310,000.00
Fixed Cost
Materials	$ 300,000.00	$    300,000.00
Other	$ 240,000.00	$    360,000.00
Total Fixed Cost	$ 540,000.00	$    660,000.00
Total Cost = VC + FC	$ 780,000.00	$    970,000.00
Profit = Sales - Total Cost
Let price be X
$50,000 = (400,000 X + 500,000 x 1.2X)- 1,750,000
1800000= 900,000 X
X = 1800000/1000000	$            1.80
Selling price of CD	$            1.80
Selling price of DVD = 1.8 x 1.20	$            2.16
b)	CD	DVD
Sales	$ 720,000.00	$ 1,080,000.00
Less: Total cost	$ 780,000.00	$    970,000.00
Profit	$  (60,000.00)	$    110,000.00