George Fine, owner of Fine Manufacturing, is considering the introduction of a new product line. George has considered factors such as costs of raw materials, new equipment, and requirements of a new production process. He estimates that the variable costs of each unit produced would be $8 and fixed costs would be $70,000.
(a) If the selling price is set at $20 each, how many units have to be produced and sold for Fine Manufacturing to break even? Use both graphical and algebraic approaches.
(b) If the selling price of the product is set at $18 per unit, Fine Manufacturing expects to sell 15,000 units. What would be the total contribution to profit from this product at this price?
(c) Fine Manufacturing estimates that if it offers the product at the original target price of $20 per unit, the company will sell about 12,000 units. Which pricing strategy—$18 per unit or $20 per unit—will yield a higher contribution to profit?
(d) Identify additional factors that George Fine should consider in deciding whether to produce and sell the new product.