A company produces 1000 packages of dog treats per month.The sales price is $5 per pack.Variable cost is $1.50 per unit,and fixed costs are $1800 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will increase from $1.50 to $1.90 per unit,and fixed costs will increase by 10%.At what sales price for the new product will the two alternatives (sell as is or process further)produce the same operating income? (Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

To find the sales price where both alternatives produce the same operating income, calculate the operating income for both scenarios and set them equal. The current operating income is (1000 * $5) - (1000 * $1.50) - $1800 = $1700. For the new product, the fixed costs increase by 10% to $1980, and the variable cost is $1.90. Set the equation: (1000 * new price) - (1000 * $1.90) - $1980 = $1700. Solving for the new price gives $5.58.

A Company Produces 1000 Packages of Dog Treats Per Month