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Product Pricing and Profit Analysis

Freedom, Inc., management had formed cost studies and projected the following annual cost based on 40,000 units of production and sales:
total annual cost % of variable portion of total annual cost
direct material $400,000 100%
direct labor 360,000 75%
manufacturing overhead 300,000 40%
selling, general and administrative 200,000 25%

1. Compute freedom's unit selling price that will yield a projected 10% profit on sales if sales are 40,000 unit

2. Assume that management selects a selling price of $30 per unit. Compute freedom's dollar sales that will yield a projected 10% profit on sales assuming the above variable-fixed costs relationship are valid.

Solution Preview

The objective, of the problem, is to determine the selling price and sales value after allowing for a profit margin.
The profit margin is the difference between the cost price and the selling price.

COST TOTAL FIXED ELEMENT VARIABLE ELEMENT
Direct material 400,000 - 400,000
direct labor ...

Solution Summary

The solution contains a discussion and excel chart that determines the difference between the cost price and selling price. The excel information is given in the response below.

$2.19