The Flint Fan Corporation is considering the addition of a new model fan, the F-
ID: 2456315 • Letter: T
Question
The Flint Fan Corporation is considering the addition of a new model fan, the F-27, to its current products. The expected cost and revenue data for the F-27 fan are as follows:
If the F-27 is added as a new product, it is expected that the contribution margin of other products will drop by $7,000 per year.
At what selling price would the new product be just breaking even?
$52.25 per unit
$50.50 per unit
$55.75 per unit
$49.00 per unit
Annual sales 4,000 units Unit selling price $58 Unit variable costs: Production $34 Selling $4 Avoidable fixed costs per year: Production $20,000 Selling $30,000 Allocated common fixed costs per year $55,000Explanation / Answer
Flint Fan Corporation F-27 Fans Details Amt $ Unit Selling Price 58 Unit variable cost Production 34 Unit Variable cost selling 4 Total Unit Variable cost 38 Direct Fixed cost Production 20,000 Direct Fixed cost Selling 30,000 Total Direct Fixed Costs 50,000 Assume required BEP unit sales Price =x Units sold 4,000 Sales revenue 4000x Variable cost 152,000 Contribution =4000x-152000 4000x-152000=50000 4000x=202000. x=202000/4000 = 50.50 So unit selling price for break even = $50.50 (pls note allocated common fixed costs and reduction in contribution margin of other products not considered as those are not relevant for F27 Break even calculation.