A company produces 1000 packages of chicken feed per month.The sales price is $5 per pack.Variable cost is $1.60 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 $1.60 to $1.90 per unit,and fixed costs will increase by 10%.The CEO wants to price the new product at a level that will bring operating income up to $2000 per month.What sales price should be charged? (Round your answer to the nearest cent.)

Question

Quizplus · Accepted Answer

First, let's calculate the current operating income:

Revenue = 1000 x $5 = $5000 
Total Variable Cost = 1000 x $1.60 = $1600 
Total Fixed Cost = $1800 
Operating Income = Revenue - Total Variable Cost - Total Fixed Cost = $5000 - $1600 - $1800 = $1600

Now, let's calculate the new operating income with the addition of the vitamin supplement:

New Total Variable Cost = 1000 x $1.90 = $1900 
New Total Fixed Cost = $1800 x 1.1 = $1980 
New Operating Income = Revenue - New Total Variable Cost - New Total Fixed Cost

We want the new operating income to be $2000, so we can set up the equation:

$2000 = 1000P - $1900 - $1980

Solving for P, we get:

P = $5.88

Therefore, the company should price the new product at $5.88 in order to achieve the desired operating income of $2000.

A Company Produces 1000 Packages of Chicken Feed Per Month