Question

During 2016, Seth Britain Lab supplied hospitals with a comprehensive diagnostic kit for $125. At a volume of 90,000 kits, Seth had fixed costs of $1,140,000 and a profit before income taxes of $300,000. Due to an adverse legal decision, Seth's 2017 liability insurance increased by $1,440,000 over 2016. Assuming the volume and other costs are unchanged, what should the 2017 price be if Seth is to make the same $300,000 profit before income taxes? (CPA adapted)

$128.30.

$141.00.

$160.30.

$250.00

Answer 1

Sales in 2016	11250000	=90000*125
Total variable cost in 2016	9810000	=11250000-1140000-300000
Unit variable cost in 2016	109	=9810000/90000
Required sales	12690000	=(90000*109)+1140000+1440000+300000
2017 selling price	141.00	=12690000/90000
Option B $141.00 is correct