Product Pricing: Single Product Presented is the 2009 contribution income statement of Colgate Products. COLGATE PRODUCTS
Contribution Income Statement
For Year Ended December 31, 2009
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 770,000
Selling and administrative 340,000 (1,110,000)
Net income $132,000
During the coming year, Colgate expects an increase in variable manufacturing costs of $6 per unit and in fixed manufacturing costs of $72,000.
(a) If sales for 2010 remain at 18,000 units, what price should Colgate charge to obtain the same profit as last year?
(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.
(c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $172,000 with a unit selling price of $109?