Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.
At what selling price would the new product be just breaking even?
A) $246 per unit
B) $250 per unit
C) $232 per unit
D) $282 per unit

Question

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows:  If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.
At what selling price would the new product be just breaking even?
A) $246 per unit 
B) $250 per unit 
C) $232 per unit 
D) $282 per unit

Quizplus · Accepted Answer

11eacbfc_c63d_88a8_8ffe_8f7cfb1f9bee_TB7552_00 The selling price would have to cover all of the costs of $625,000. On a per unit basis, the cost is $250 per unit (= $625,000 ÷ 2,500 units).

Key Corporation Is Considering the Addition of a New Product