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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 $14,400,000, of which $5,400,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $36 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 $9,000,000, what is the selling price per case? Round answer to two decimal places.

Business   Accounting   
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Answer #1

Answer : Selling Price PEr Case = $87.00

Assume Total Sales Revenue = S

Total Sales Revenue = Total Cost + Desired PRofit

Total Sales Revenue = Fixed cost + Variable cost + Variable Selling expenses + Desired Profit

Total Sales Revenue = $14,400,000+ ( $36*800,000)+ ( S*25%) +9,000,000

S= 23,400,000+28,800,000+ 0.25 S

S= 52,200,000+0.25S

S-0.25S = 52,200,000

0.75 S = 52,200,000

S= 52,200,000/ 0.75 = 69,600,000

Total Sales Revenue = $ 69,600,000

Selling Price Per unit = $69 ,600,000/ 800,000 = $87.00 ( Answer)

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