Angel Toys is a producer of tiny dolls for children. Following is information about its revenue and cost structure: $\begin{array}{ll}
\text { Selling price per doll }&\$8.00\
\text { Variable costs per doll: }\
\text { Production (manufacturing costs) } & \$ 1.20 \
\text { Selling and administration (non-manufacturing costs) } & \$ 0.40\
\text { Total fixed costs: }\
\text { Production (manufacturing costs) }&\$ 40,000 \text { per year }\
\text { Selling and administration (non-manufacturing costs) }&\$ 32,000 \text { per year }
\end{array}$ Assume that sales are expected to fall from 14,000 units this year to 13,000 units next year. Angel Toys would like to raise the selling price next year from the current $8.00 per unit to achieve the same profits next year as the current year. What will the sales price have to be next year, to generate the same profits next year as this year?

Question

Quizplus · Accepted Answer

To maintain the same profit, Angel Toys needs to cover the reduced sales volume by increasing the price. The calculation shows that the new price should be between $8.40 and $8.59 to achieve the same profit with 13,000 units.

Angel Toys Is a Producer of Tiny Dolls for Children