Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment. Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $70,000.
a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use an algebraic approach to get your answer.
b. Williams forecasts sales of 12,000 units for the first year if the selling price is set at $16.00 each. What would be the total contribution to profits from this new product during the first year?
c. If the selling price is set at $12.00, Williams forecasts that first-year sales would increase to 19,000 units. Which pricing strategy ($16.00 or $12.00) would result in the greater total contribution to profits?