Food Company is considering a modification to one of its main products next year
ID: 2373418 • Letter: F
Question
Food Company is considering a modification to one of its main products next year that would make it more attractive to customers. As a result, Food Company could increase the selling price by $2.96. However, fixed costs would increase to $15,390.
Financial information for the product for this year is as follows:
Selling price: $10.34
Variable costs: $3.30
Fixed costs: $10,600
At what unit sales level would Food Company be indifferent between modifying the product and not modifying it?
Explanation / Answer
Present contribution per unit = $7.04
Revised Contribution per unit = $10
Present fixed cost = $10600
Revised Present cost = $15390
At what unit sales level would Food Company be indifferent between modifying the product and not modifying it?
Indiiference Sales Unit = (15390-10600)/(10-7.04) = 1618.24 Unit