Answer:
a) $1.85 per CD pack
$2.22 per DVD pack
b) profits for selling CDs = -$30,000
profits for selling DVDs = $130,000
Explanation:
Variable costs Fixed costs
Materials $200,000 $500,000
Other $250,000 $800,000
DVDs:
materials = $700,000 x 50% = $350,000 ($250,000 fixed)
Other = $1,050,000 x 60% = $630,000 ($480,000 fixed)
total = $980,000
CDs:
materials = $350,000 ($250,000 fixed)
Other = $420,000 ($320,000 fixed)
total = $770,000
Expected sales:
CDs 400,000 packs
DVDs 500,000 packs
since the company wants to earn $100,000 in profits, it should charge:
400,000X - $770,000 + 500,000Y - $980,000 = $100,000
400,000X + 500,000Y = $1,850,000
Y = 1.2X (we replace Y)
400,000X + 600,000X = $1,850,000
1,000,000X = $1,850,000
X = $1,850,000 / 1,000,000 = $1.85 per CD pack
Y = $1.85 x 1.2 = $2.22 per DVD pack
profits for selling CDs = ($1.85 x 400,000) - $770,000 = -$30,000
profits for selling DVDs = ($2.22 x 500,000) - $980,000 = $130,000
