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3 February, 01:07

Sue Bee Honey is one of the largest processors of its product for the retail market. Assume that one of its plants has annual fixed costs total $8,000,000, of which $3,000,000 is for administrative and selling efforts. Sales are anticipated to be 800,000 cases a year. Variable costs for processing are $40 per case, and variable selling expenses are 25 percent of the selling price. There are no variable administrative expenses.

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If the company desires a profit of $5,000,000. what is the selling price per case?

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  1. 3 February, 01:19
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    The selling price per case is $75

    Explanation:

    Sue Bee Honey

    Profit is a function of how well a company is able to absorb/cover its costs of doing business.

    Thus, to derive Profit we will consider this format;

    Sales = xx

    Less Variable costs = x

    Contribution = xx

    Less Fixed Costs = x

    gross Profit = xx

    Less selling & Admin expense x

    Profit = x

    Assume sales which is unknown is a

    Sales = a

    Less Variable costs = 40 x 800,000 = $32,000,000 ...,. (b)

    Contribution = a minus b ... (C)

    Less Fixed Costs = $5,000,000 ... (d)

    gross Profit = c - d ... (e)

    Less fixed selling & Admin expense = $3,000,000 ... (f)

    Less Variable selling expense = 25% x (a) ... g

    Profit = $5,000,000

    Stretching this out in a mathematical format.

    5,000,000 + 3,000,000 + 5,000,000 + 32,000,000 = a - 25% of a = 0.75a

    $45,000,000 = 0.75a

    a = Sales = 45,000,000/0.75 = $60,000,000

    To derive selling Price:

    Divide sales by sales units = $60,000,000 / 800,000 = $75 per unit
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