Product Pricing: Single Product (LO2)

Presented is the 2012 contribution income statement of Colgate Products.

COLGATE PRODUCTS Contribution Income Statement For Year Ended December 31, 2012 SENS (2 CEO UTATIS)) hs eee eae $1,440,000 Less variable costs SOSTONGOOGS SOG me sian esccc ycler0s ) $480,000 Selling and administrative............. 132,000 (612,000)
GommnibutlonmarGinwewatc 4 kd ev. Ga bee 828,000 Less fixed costs Manufacturing overhead.............. 520,000 Selling and administrative............. 210,000 (730,000)
INGIINGOIMO cer ee Net rs Aca tea cates $ 98,000 During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $48,000.
Required

a. If sales for 2010 remain at 12,000 units, what price should Colgate charge to obtain the same profit as last year?

b. Management believes that sales can be increased to 16,000 units if the selling price is lowered to $107. Is this action desirable?

c. After considering the expected increases in costs, what sales volume is needed to earn a profit of $98,000 with a unit selling price of $107? LO.1