Newman Company currently produces and sells 7,000 units of a product that has a contribution margin of $9 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease thevariable cost per unit to $11 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 12,000 units of product. What sales price would have to be charged to earn a $80,000 target profit assuming the investment in technology is made?Multiple Choice$16$23$21$11

Question
Asked Nov 8, 2019
23 views
Newman Company currently produces and sells 7,000 units of a product that has a contribution margin of $9 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease the
variable cost per unit to $11 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 12,000 units of product. What sales price would have to be charged to earn a $80,000 target profit assuming the investment in technology is made?
Multiple Choice
$16
$23
$21
$11
help_outline

Image Transcriptionclose

Newman Company currently produces and sells 7,000 units of a product that has a contribution margin of $9 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease the variable cost per unit to $11 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 12,000 units of product. What sales price would have to be charged to earn a $80,000 target profit assuming the investment in technology is made? Multiple Choice $16 $23 $21 $11

fullscreen
check_circle

Expert Answer

Step 1

Target Profit: It refers to the desired amount of profit that a company expects to achieve by the end of an accounting period after it reaches its break-even point. Thus, the company needs to compute the required sales to earn the target profit.

Step 2

Calculate the new selling price ...

Statement showing computations
Amount ($)
Particulars
New Fixed Costs = 20,000*2
40,000
Total variable cost on 12,000 Units =
12000 11
132,000
Total Costs
172,000
Profit desired
80.000
Sales
252.000
No of units
12,000
Sales Price per unit 252,000/12,000
21
help_outline

Image Transcriptionclose

Statement showing computations Amount ($) Particulars New Fixed Costs = 20,000*2 40,000 Total variable cost on 12,000 Units = 12000 11 132,000 Total Costs 172,000 Profit desired 80.000 Sales 252.000 No of units 12,000 Sales Price per unit 252,000/12,000 21

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Cost Management

Related Accounting Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Direct Materials Variances I-Time, Inc., produces electronic timepieces. The company uses mini-LCD d...

A: Calculation of variances:

question_answer

Q: Are revenue and expenses equity accounts  that cash and land are to assets?

A: Statement of Retained Earning is a financial statement that represents the changes to the retained e...

question_answer

Q: Does egg-producing chickens go on the balance sheet as inventory or as property, plant, and equipmen...

A: In poultry accounting, egg producing chicken are considered inventory as current assets and not long...

question_answer

Q: Concord Corporation has a weighted-average unit contribution margin of $30 for its two products, Sta...

A: The break-even point sales in units has been calculated by dividing fixed cost with weighted average...

question_answer

Q: Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline provides air transporta...

A: Break even sales is the dollar amount of revenue at which a business earns a profit of zero i.e. No ...

question_answer

Q: Information related to plant assets, natural resources, and intangibles at the end of 2020 for Metlo...

A: Balance sheet comprises of Assets, liabilities and Stockholders' equity. Balance sheet as the name s...

question_answer

Q: Swift Co. produces footballs. It incurred the following costs this year: Direct materials $40,000 Di...

A: Absorption costing: Absorption costing is used to compute cost of a product. Under this method total...

question_answer

Q: Issuing Notes Payable On September 30, Bello International borrows $320,000 from Chase Bank with a 9...

A: Prepare journal entry:

question_answer

Q: Swift Co. produces footballs. It incurred the following costs this year: $35,000 Direct materials 31...

A: Total product cost under variable costing:The total product costs for the company under the variable...