Reference no: EM132514323

Product Pricing: Single Product

Presented is the 2009 contribution income statement of Colgate Products.

COLGATE PRODUCTS

Contribution Income Statement

For Year Ended December 31, 2009

Sales (18,000 units)                                       $2,160,000

Less variable costs

Cost of goods sold                                        $720,000

Selling and administrative                      198,000 (918,000)

Contribution margin                              1,242,000

Less fixed costs

Manufacturing overhead                            770,000

Selling and administrative                        340,000 (1,110,000)

Net income                                            $132,000

• During the coming year, Colgate expects an increase in variable manufacturing costs of $6 per unit and in fixed manufacturing costs of $72,000.

Question (a) If sales for 2010 remain at 18,000 units, what price should Colgate charge to obtain the same profit as last year?

Question (b) Management believes that sales can be increased to 24,000 units if the selling price is lowered to $105. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate.

Question (c) After considering the expected increases in costs, what sales volume is needed to earn a profit of $132,000 with a unit selling price of $105?