Question

Galaxy Corp. is considering opening a new division to make iToys that it expects to sell at a price of $15,250 each in the first year of the project. The company expects the cost of producing each iToy to be $6,700 in the first year; however, it expects the selling price and cost per iToy to increase by 3.00% each year.
Based on the preceding information and rounding dollar amounts to the nearest whole dollars, the company expects the selling price in the fourth year of the project to be_______ , and it expects the cost per unit in the fourth year of the project to be _______.

Answer 1

Answer:

Selling price= $17,164

Unitary variable cost= $7,541

Explanation:

Giving the following information:

Selling price in the first year= $15,250

Unitary variable cost on the first year= $6,700

Increase rate= 3%

To calculate the selling price and variable cost per unit in the fourth year, we need to use the following formula:

FV= PV*(1+i)^n

PV= current value

i= increase rate

n= number of years

Selling price= 15,250*(1.03^4)= $17,164

Unitary variable cost= 6,700*(1.03^4)= $7,541