A leading beverage company sells its signature soft drink brand in vending machines for $0.79 per 12 oz. can. A vending machine has monthly fixed costs of space rental, energy consumption, and capital depreciation of $145. Variable cost for a can of soda is $0.47. What would the new selling price of the soda need to be in order to achieve a 20% increase in the contribution per unit after the increase in the price of sugar?

Question

Zoe Powell

Business

12 September, 19:18

A leading beverage company sells its signature soft drink brand in vending machines for $0.79 per 12 oz. can. A vending machine has monthly fixed costs of space rental, energy consumption, and capital depreciation of $145. Variable cost for a can of soda is $0.47. What would the new selling price of the soda need to be in order to achieve a 20% increase in the contribution per unit after the increase in the price of sugar?

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Answers (1)

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Terrell Goodwin · Answer 1

Selling price = $0.89

Explanation:

Contribution per unit before price change = Selling price - variable cost = $0.72 - $0.32 = $0.40

A 20% increase in contribution is required. New contribution should be $0.4 + 20% of $0.4 = $0.48

Thus we have,

Contribution per unit = Selling price - variable cost

0.48 = selling price - 0.41

Selling price = $0.89