Newman Company currently produces and sells 3,000 units of a product that has a
ID: 2466856 • Letter: N
Question
Newman Company currently produces and sells 3,000 units of a product that has a contribution margin of $8 per unit. The company sells the product for a sales price of $22 per unit. Fixed costs are $23,000. The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 8,000 units of product. What sales price would have to be charged to earn a $90,000 target profit assuming the investment in technology is made?
a. 22
b.8
c. 18
d.25
Explanation / Answer
Answer D
Per unit sales price=(margin+fixed cost + variable cost)/no of units
=(90000+46000+64000)/8000
= 25
Current units rate total Sales 3000 22 66000 Variable cost 3000 14 42000 Contribution 3000 8 24000 Fixed cost 23000 Net margin 1000 New technology units rate total Sales 8000 Variable cost 8000 8 64000 Contribution Fixed cost 46000 Net margin 90000