E21-24. Product Pricing: Two Products

Assume Verbatim, a subsidiary of CMC Magnetics, manufactures two products, CDs and DVDs, both on the same assembly lines and packaged 30 disks per pack. The predicted sales are 150,000 packs of CDs and 500,000 packs of DVDs. The predicted costs for the year are as follows:

Variable Costs Fixed Cost

Materials $4,000,000 $1,560,000

Other 2,000,000 2,052,500

CDs use 25% of the materials costs and 10% of the other costs. DVDs use 75% of the materials costs and 90% of the other costs. The management of Verbatim desires an annual profit of $450,000.

Required:

a. What price should Verbatim charge for each disk pack if management believes the DVDs sell for twice the price of the CDs?

b. What is the total profit per product using the selling prices determined in part a?