Question

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 $16,800,000, of which $6,300,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $42 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 $10,500,000, what is the selling price per case? Round answer to two decimal places.

Answer 1

Ans) Total sales units for the year = 800000 cases
Total annual fixed costs = $ 16,800,000
Let the Selling price be 'x'.
Variable processing cost = $42 per case
Variable Selling expenses = 25% of 'x' i.e 0.25x
Contribution per unit = x-42-0.25x = 0.75x - 42
Total Contribution for 800000 cases = (0.75x - 42)*800,000 = 600,000x - 33,600,000

Profit = $10,500,000, which must be equal to : 600,000x - 33,600,000 -16,800,000
Solving equation 10,500,000 = 600,000x - 33,600,000 - 16,800,000
60,900,000 = 600,000x
then x = 101.5   i.e selling price is $101.5