Exhibit 22-6 Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering adding a new line of pens. Market research shows the following expected revenues and costs if the pen line were added:
Refer to Exhibit 22-6. If Newell generally sets a markup of 20%, what is the lowest selling price that should be considered for the new pen line?

Question

Exhibit 22-6 Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering adding a new line of pens. Market research shows the following expected revenues and costs if the pen line were added:
 Refer to Exhibit 22-6. If Newell generally sets a markup of 20%, what is the lowest selling price that should be considered for the new pen line?

Quizplus · Accepted Answer

To determine the lowest selling price, we need to calculate the total cost per unit and add a 20% markup.

Total cost per unit = variable cost per unit + fixed cost per unit

Total cost per unit = $2.50 + ($950,000 / 300,000) = $5.17

Selling price with 20% markup = $5.17 x 1.2 = $6.20

Therefore, the lowest selling price that should be considered for the new pen line is $4.08 (the closest option to $6.20).

Exhibit 22-6 Newell Company Presently Has Three Product Lines: Paper