Question

XYZ makes and sells bicycle parts. Last year XYZ sold 6,000 handlebars, generating sales of $180,000. This year they are considering a new pricing strategy with a target profit goal of $72,000. They determined that for every $2 increase to the selling price, a 100 decrease in unit sales was expected. Their total costs were $100,000 with fixed costs accounting for $64,000. This year, XYZ is considering changing the selling price to $36.
a) What was XYZ's average selling price per handlebar last year?
b) What were XYZ's total variable costs last year?c)What were XYZ's average unit variable costs last year?
d) What were XYZ's average unit contribution margins ($) last year?

Answer 1

Answer:

a. XYZ's average selling price per handlebar last year was $30

b.

XYZ's total variable costs last year were $36,000

c. XYZ's average unit variable costs last year were $6

d. XYZ's average unit contribution margins ($) last year were $24

Explanation:

a.

XYZ's average selling price per handlebar last year = Total Sales/number of handlebars sold = $180,000/6,000 = $30

b.

XYZ's total variable costs last year = total costs - fixed costs = $100,000 - $64,000 = $36,000

c. XYZ's average unit variable costs last year = Total variable costs/number of handlebars = $36,000/6,000 = $6

d. XYZ's average unit contribution margins ($) last year = Selling price per handlebar - average unit variable costs = $30 - $6 = $24