Question

Product Pricing: Single Product Presented is the 2014 contribution income statement of Colgate Products. COLGATE PRODUCTS Contribution Income Statement For Year Ended December 31, 2014 Sales (13,000 units) $ 1,560,000 Less variable costs Cost of goods sold $ 520,000 Selling and administrative 143,000 (663,000) Contribution margin 897,000 Less fixed costs Manufacturing overhead 520,000 Selling and administrative 210,000 (730,000) Net income $ 167,000 During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $35,000. (a) If sales for 2015 remain at 13,000 units, what price should Colgate charge to obtain the same profit as last year? Round to the nearest cent.

Answer 1

Answer:

$130.69

Explanation:

                                                              2014                   2015  

Sales (13,000 units)                       $1,560,000

Cost of goods sold                          $520,000            $624,000

Selling and administrative               $143,000             $143,000

Contribution margin                        $897,000

Less fixed costs man. overhead    $520,000            $555,000

Selling and administrative               $210,000            $210,000

Net income                                       $167,000

if the total costs increase by $104,000 + $35,000 = $139,000, then the price per unit should increase by $139,000 / 13,000 = $10.6923 per unit

the 2014 price =  $1,560,000  / 13,000 = $120

the new price for 2015 should be $120 + $10.69 = $130.69