Question: Rosario Company produces a single product in its Buenos Aires

Rosario Company produces a single product in its Buenos Aires plant, which currently sells for 7.50 p per unit. Fixed costs are expected to amount to 90,000 p for the year and all variable manufacturing and administrative costs are expected to be incurred at a rate of 4.50 p per unit. Rosario has two salespeople who are paid strictly on a commission basis. Their commission is 10 percent of the sales dollars they generate. (Ignore income taxes.) (p denotes the peso, Argentina’s national currency. Many countries use the peso as their national currency. On the day this exercise was written, Argentina’s peso was worth .1886 U.S. dollars.)

1. Suppose management alters its current plans by spending an additional amount of 7,500 p on advertising and increases the selling price to 9.00 p per unit. Calculate the profit on 60,000 units.
2. The Salente Company has just approached Rosario to make a special one-time purchase of 10,000 units. These units would not be sold by the sales personnel, and, therefore, no commission would have to be paid. What is the price Rosario would have to charge per unit on this special order to earn additional profit of 30,000 p?
(CMA, adapted)

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  • CreatedApril 22, 2014
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