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In: Accounting

Hayes Company operated at normal capacity during the current year, producing 53929 units of its single...

Hayes Company operated at normal capacity during the current year, producing 53929 units of its single product. Sales totaled 43419 units at an average price of $23.23 per unit. Variable manufacturing costs were $9.14 per unit, and variable marketing costs were $5.35 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $198830 for manufacturing and $75151 for marketing.

If Hayes’s variable manufacturing costs unexpectedly increase by 10%, what is the new unit selling price that would yield the same contribution margin ratio as before the cost increase?

Select one:

a. $25.55

b. $24.09

c. $23.23

d. $24.70

Solutions

Expert Solution

Selling price per unit = $23.23

Variable manufacturing cost per unit = $9.14

Variable marketing cost per unit = $5.35

Total variable cost per unit = Variable manufacturing cost per unit+ Variable marketing cost per unit

= 9.14+5.35

= $14.49

Contribution margin per unit = Selling price per unit - Total variable cost per unit

= 23.23-14.49

= $8.74

Contribution margin ratio = Contribution margin per unit/ Selling price per unit

= 8.74/23.23

= 37.62%

Increase in variable manufacturing cost per unit = 10%

New variable manufacturing cost per unit = 9.14 x 110%

= $10.05

New variable manufacturing cost per unit = New variable manufacturing cost per unit + Variable marketing cost per unit

= 10.05+5.35

= $15.40

New selling price per unit = ?

Contribution margin ratio = Contribution margin per unit/ Selling price per unit

37.62% = (Selling price per unit- 15.40)/ Selling price per unit

0.3762 Selling price per unit= Selling price per unit - 15.40

0.6238 Selling price per unit = 15.40

Selling price per unit = $24.70

Correct option is d.

ekkarill92 answered 1 year ago

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