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Product Pricing: Single Product Sue Bee Honey is one of the largest processors of its product...

Product Pricing: Single Product
Sue Bee Honey is one of the largest processors of its product for the retail market. Assume that one of its plants has annual fixed costs totaling $9,600,000, of which $3,600,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $24 per case, and variable selling expenses are 25 percent of selling price. There are no variable administrative expenses.
  
If the company desires a profit of $6,000,000, what is the selling price per case?
Round answer to two decimal places.

___ price per case

Business   Accounting   
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Homework Answers

Answer #1

Solution: Selling Price per case = $ 58.00

Calculation:

1) Number of Units Sold= [Fixed Costs+Desired Profit] / Contribution Margin per unit

800,000 = [$9,600,000 + $ 6,000,000] / Contribution Margin per unit

Contribution Margin per unit = $ 19.50.

2) Contribution Margin per unit = Selling Price per unit - Variable Processing Cost - Variable Selling Expenses

$ 19.50 = Selling Price - $ 24 - 25% of selling Price

0.75 Selling Price = $ 43.50.

Selling Price = $ 58.00

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