Problem 21-2

Determine the most profitable price-quantity combination (L.O. 3)

Pick-Me-Up Company is introducing a new coffee in its stores and must decide what price to set for the coffee beans. An estimated demand schedule for the product follows:

Price One Pound

Units Demanded

$5 80,000

6 72,000

7 56,000

8 48,000

9 36,000

10 30,000

Estimated costs follow:

Variable manufacturing costs $2 per unit

Fixed manufacturing costs $40,000 per year

Variable selling and administrative costs $1 per unit

Fixed selling and administrative costs $20,000 per year

a.

How do I make a schedule showing management the total revenue, total cost, and total profit or loss for each selling price.

b.

Which price do you recommend to the management of Pick-Me-Up? Explain this please.