Product Pricing: Single Product

Presented is the Year $1$ contribution income statement of Colgate Products.

COLGATE PRODUCTS

Contribution Income Statement

For Year Ended December $31,$ Year $1(*)$

Sales $(18,000$ units$)*$$$2,160,000$

Less variable costs

Cost of goods sold $$720,000$

Selling and administrative $198,000*(918,000)$

Contribution margin $*1,242,000$

Less fixed costs

Manufacturing overhead $750,000$

Selling and administrative $320,000*(1,070,000)$

Net income $*$$$172,000$

Next year, Colgate expects an increase in variable manufacturing costs of $$8$ per unit and in fixed manufacturing costs of $$108,000.$

$($a$)$ If sales for Year $2$ remain at $18,000$ units, what price should Colgate charge to obtain the same profit as year $1?$

$Answer

$($b$)$ Management believes that sales can be increased to $24,000$ units if the selling price is lowered to $$109.$What would be the excepted profit $($or loss$)$ as a result of this action? Use a negative sign with your answer, if appropriate.$$

$Answer

$($c$)$ After considering the expected increases in costs, what sales volume is needed to earn a pretax profit of $$172,000$ with a unit selling price of $$109?$

Answer$$units