Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 44

Calculate selling price of new product; what-if questions; break-even Meyers Corp. has annual revenues of $450,000, an average contribution margin ratio of 35%, and fixed expenses of $175,000.

Required:

a.Management is considering adding a new product to the company’s product line. The new item will have $9.75 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio.

---

b. If the new product adds an additional $37,800 to Meyers’s fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product?

---

c. If 15,000 units of the new product could be sold at a price of $16.00 per unit, and the company’s other business did not change, calculate Meyers’s total operating income and average contribution margin ratio.

---

d. Describe how the analysis of adding the new product would be complicated if it were to “steal” some volume from existing products.

Step 1 of 6

Computation of required points by extracting the information as follows: