Question

The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC anticipates selling 100 units of the new product next month. Moreover, they would like to realize a profit of $5,000. What should the selling price per unit be to realize this profit.

Answer 1

In order to determine the selling price of the unit, we must equate the sum of all the costs plus profit to the number of items times its selling price. In this situation, the total cost is 5000 + 10(100) = 6000. We equate costs + profit = sales, 
6000 + 5000 = 100(selling price). Therefore the selling price is 110.