Product Pricing: Single Product

Presented is the 2017 contribution income statement of Grafton Products.

GRAFTON PRODUCTS

Contribution Income Statement

For Year Ended December 31, 2017

Sales (13,000 units)$ 2,925,000

Less variable costs

Cost of goods sold$ 780,000

Selling and administrative 208,000 (988,000)

Contribution margin 1,937,000

Less fixed costs

Manufacturing overhead 780,000

Selling and administrative 315,000 (1,095,000)

Net income $ 842,000

During the coming year, Grafton expects an increase in variable manufacturing costs of $12 per unit and in fixed manufacturing costs of $39,000.

(a) If sales for 2018 remain at 13,000 units, what price should Grafton charge to obtain the same profit as last year? Round to the nearest cent.

$Answer

(b) Management believes that sales can be increased to 16,000 units if the selling price is lowered to $200.What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.

Answer

(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $254,800 with a unit selling price of $200? Round to the nearest unit.