Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $18,000. The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 9,000 units of product. What sales price would have to be charged to earn a $99,000 desired profit assuming the investment in technology is made?
A) $22
B) $23
C) $15
D) $13

Question

Quizplus · Accepted Answer

Sales - Variable costs - Fixed costs = Desired profit
(Selling price per unit × 9,000 units) - ($8 per unit × 9,000 units) - ($18,000 + $18,000) = $99,000
(Selling price per unit × 9,000 units) - $72,000 - $36,000 = $99,000
Selling price per unit × 9,000 units = $99,000 + $108,000
Selling price per unit = $207,000 ÷ 9,000 units = $23 per unit

Newton Company Currently Produces and Sells 4,000 Units of a Product