Managerial Accounting - tools for decision making

Presented is the 2012 contribution income statement of Colgate Products.

Colgate Products
Contribution Income Statement
For Year Ended December 31, 2012

Sales (12000 units) $1,440,000
Less variable costs
Cost of goods sold $480,000
Selling and administrative 132,000

Contribution margin 828,000
Less fixed costs
manufacturing overhead 520,000
selling and administrative 210,000

Net income $98,000

During the coming year Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing cost of $48,000.

a. If sales for 2010 remain at 12,000 unites, what price should colgate charge to obtain the same profit as last year?

b. Management believes that sales can be increased to 16,000 units if the selling price is lowered to $107. Is this action desirable?

c. After considering the expected increases in costs, what sales volume is needed to earn a profit of $98,000 with a unit selling price of $107.

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