Posted: August 9th, 2016

Calculate the Selling Price of a New Product; What-If Questions; Break-Even Point

Meyers Corporation has an annual income of $450,000, and 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 $9.75 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. (Omit the “$” sign in your response.)

b). If the new product adds an additional $37,800 to Meyer’s fixed expenses, how many units of the new product must be sold at the price calculated in requirement a) to break even on the new product? (Do not round your intermediate calculations.)

c). If 15,000 units of the new product could be sold at a price of $16.00 per unit, and the company’s other business did not change, calculate Meyer’s total operating income and average contribution margin ratio. (Do not round your intermediate calculations. Round your answers to 2 decimal places. Omit the “$” and “%” signs in your response.)

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