Quality Data manufactures two products, CDs and DVDs, both on the same assembly

Question

Quality Data manufactures two products, CDs and DVDs, both on the same assembly lines and packaged 10 disks per pack. The predicted sales are 400,000 packs of CDs and 500,000 packs of DVDs. The predicted costs for the year 2009 are as follows:

Each product uses 50 percent of the materials costs. Based on manufacturing time, 40 percent of the other costs are assigned to the CDs, and 60 percent of the other costs are assigned to the DVDs. The management of Quality Data desires an annual profit of $50,000.

(a) What price should Quality Data charge for each disk pack if management believes the DVDs sell for 20 percent more than the CDs? Rounds answers to the nearest cent.
CDs $Answer

DVDs $Answer

(b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate.
CDs $Answer
DVDs $Answer

Variable Costs Fixed Costs Materials $200,000 $600,000 Other 150,000 700,000

Explanation / Answer

Answer: a)

Let the price of CD be X and DVD be Y.

As per the condition given:

X+.20X = Y

1.2X = Y

Sales - COGS = Gross profit

Sales = COGS + Gross Profit

Calculation of COGS for CD & DVD:

Sales = 1650000+50000 = 1700000

400000X+500000Y = $1700000

400000X+500000*1.2X = $1700000

400000X+600000X = $1700000

1000000X = $1700000

Price of CD = 1700000/1000000 = $1.7

Price of DVD = 1.2 * 1.7 = $2.04

Answer: b)

Calculation of total profit per product:

Variable cost Fixed cost Total Material Other Material Other CD 100000 60000 300000 280000 740000 DVD 100000 90000 300000 420000 910000 Total 1650000

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