A-6 The Economists' Approach to Pricing: Absorption Costing Approach to Pricing LO1, LO2) Software Solutions, Inc., was started by two young software engineers to market SpamBlocker, a software application they had written th licited mass mailings. Sales of the software have been good at 50,000 units a month, but the com- pany has been losing money as shown below: Cost Plus at screens incoming e-mail messages and eliminates unso- Sales (50,000 units S25 per unit. . . . . . . . . $1,250,000 Variable cost (50,000 units S6 per unit). 300,000 Contribution margin Fixed expenses Net operating income (loss).$ (10,00o) 950,000 960,000 The company's only variable cost is the $6 fee it pays to another company to reproduce the software on floppy diskettes, print manuals, and package the result in an attractive box for consumers. Monthly fixed selling and administrative expenses are $960,000. The company's marketing manager has been arguing for some time that the software is priced too high. She estimates that every 5% decrease in price will yield an 8% increase in unit sales. The marketing manager would like your help in preparing a presentation to the company's owners con- ceming the pricing issue. 1. To help the marketing manager prepare for her presentation, she has asked you to fill in the blanks in the following table. The selling prices in the table were computed by successively decreasing the selling price by 5%. The estimated unit sales were computed by successively increasing the unit sales by 8%For example, $23.75 is 5% less than $25.00 and 54,000 units is 8% more than 50,000 units. Net Selling Estimated Price Fixed Expenses Income Cost Unit Sales 50.000-$1,250,000- -S 300.0005960.000-1S(10,000) - 00 $23.75 $22.56 $21.43 $20.36 $19.34 $18.37 $17.45 $16.58 $15.75 $1,282,500 $324,000 $960,000 (1,500) 54,000 58,320 62,986 68,025 73,467 79,344 85,692 92,547 99,951