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26 September, 11:34

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)

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  1. 26 September, 13:35
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    Answer: The answer is $27.25

    Explanation:

    Let x be the price Sweet dreams will charge to earn the profit of $75,000

    New sales units = 20,000

    New variable cost = $19

    We know, Sales - Variable cost - Fixed cost = Profit

    Now applying the equation,

    20,000x - (20,000*19) - 90,000 = $75000

    20,000x = $75,000 + 380,000 + 90,000

    therefore, x = $27.25

    So, Sweet Dreams will charge $27.25 to earn the same profit it is earning now i. e. $75000 per year.
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