Net sales for the year were $325,000 and cost of goods sold was $240,500 for the company's existing products.A new product is presently under development and has an expected selling price of $40 per unit in order to remain competitive with similar products in the marketplace. What is the maximum cost per unit that can be incurred to manufacture the new product such that the product can be priced at $40 per unit and will not result in a reduction to the company's gross profit ratio?

Question

Quizplus · Accepted Answer

The gross profit ratio is calculated as (Net Sales - Cost of Goods Sold) / Net Sales. For the existing products, this is ($325,000 - $240,500) / $325,000 = 0.26 or 26%. To maintain this ratio for the new product, the cost per unit must be such that the gross profit ratio remains 26%. Therefore, the cost per unit should be $40 - ($40 * 0.26) = $29.60.

Net Sales for the Year Were $325,000 and Cost of Goods