A Digitized Music Tuner Has Been a Staple in Smooth

question 82

Essay

A digitized music tuner has been a staple in Smooth Sounds' product line for several years. Annual fixed costs of production and administration related to this product in the past have been $643,500. Variable costs of production and sales have been $17 per unit. The selling price in the past has been $28 per unit. Based on the appearance of competing products on the market, management has asked you to do the following:
a. Compute the breakeven point in units and sales dollars for the present product.
b. Compute the breakeven point in units and sales dollars if the variable costs increased by $3 per unit and the fixed costs increased by $14,375 per month.
c. Using the information from (b), an expected additional monthly advertising charge of $10,000, and a monthly sales rate of 15,000 units, compute the competitive selling price that the company must obtain in order to have a profit of $32,000 per month.

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Definitions:

Private Goods

Goods that are rivalrous and excludable, meaning one person's consumption prevents another's.

Club Goods

Goods that are excludable but non-rival in consumption, meaning they can have restricted access but one person's use does not diminish availability to others.

Prevented

Describes a situation or action that has been stopped or hindered from occurring, often through intervention or precautionary measures.

Club Good

A type of good that is excludable but non-rivalrous, meaning that access can be restricted but one person's use does not diminish availability for others.