Question

Decision Point: Pricing Your Bookshelf Your next task is to provide a pricing recommendation for the bookshelf system. The product comes with five equal-length finished walnut shelves and the hardware to hang the shelves. When assembled, the shelves look like they are floating on the wall. The product strategy team suggests taking into consideration the break-even point in determining the bookshelf system's price. You ask Conner about expectations around this product. He says, "The bookshelf system is a popular item. I expect around 2,500 units to be sold this year." Production informs you that the variable costs are $50/unit. Fixed costs are $150,000. What price point do you recommend for the bookshelf system?

Answer 1

Answer:

Selling price= $150

Explanation:

Giving the following information:

The expected sales are 2,500 units. Production informs you that the variable costs are $50/unit. Fixed costs are $150,000.

We need to use the break-even point formula and isolate the selling price:

Break-even point= fixed costs/ contribution margin

Break-even point= fixed costs/ (selling price - unitary variable costs)

2,500= 150,000 / (X - 50)

2,500X - 125,000= 150,000

2,500X= 375,000

Selling price= $150