Question

Woodridge Corporation manufactures numerous products, one of which is called Alpha-32. The company has provided the following data about this product:

Unit sales (a)		97,000
Selling price per unit	$	75.00
Variable cost per unit	$	60.00
Traceable fixed expense	$	1,304,000

Management is considering increasing the price of Alpha-32 by 6%, from $75.00 to $79.50. The company’s marketing managers estimate that this price hike would decrease unit sales by 5%, from 97,000 units to 92,150 units.Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha-32 earn at a price of $79.50 if this sales forecast is correct?

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The management of Giammarino Corporation is considering introducing a new product--a compact barbecue. At a selling price of $90 per unit, management projects sales of 10,000 units. Launching the barbecue as a new product would require an investment of $60,000. The desired return on investment is 10%. The target cost per barbecue is closest to:

Answer 1

• All working forms part of the answer
• Answer 1

New Sale price	$79.5
(-) variable cost per unit	$60
Unit Contribution	$19.5
Unit Sold at increased prices	92,150
Total contribution margin [92150 x $19.5]	$1,796,925
(-) traceable fixed expense	$1,304,000
Net operating income at increased sale price of $79.5	$492,925

• Answer 2

Working

Investment	$60,000
ROI rate	10%
Desired Net operating income [60000 x 10%]	$6,000

Answer

Expected Sales revenue [10000 units x $90]	$900,000
(-) Desired Net Income	$6000
Expected total cost	$894,000
Number of barbecue	10000
Target cost per barbecue [894000 / 10000]	$89.4