Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows:
If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.
-At what selling price would the new product be just breaking even?
A) $246 per unit
B) $250 per unit
C) $232 per unit
D) $282 per unit

Question

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows:
  If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.
-At what selling price would the new product be just breaking even?
A) $246 per unit 
B) $250 per unit 
C) $232 per unit 
D) $282 per unit

Quizplus · Accepted Answer

11ea7761_1607_e37a_81a5_a12ea9af7739_TB2580_00 The selling price would have to cover all of the costs of $625,000. On a per unit basis, the cost is $250 per unit (= $625,000 ÷ 2,500 units).

Key Corporation Is Considering the Addition of a New Product