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"PROBLEM A&#39;6 The Economists&#39; Approach to Pricing; Absorption Costing Approach to Cost-Plus Pricing [LO1, LO2] Software Solutions, Inc., was started by two young software engineers to market SpamBlocker, a software application they had written that screens incoming e-mail messages and eliminates unsolicited mass mailings. Sales of the software have been good at 50,000 units a month, but the company has been losing money as shown below: Sales (50,000 units $25 per unit) . . . . . . . . . $1,250,000 Variable cost (50,000 units $6 per unit) . . . . 300,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . 950,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . 960,000 Net operating income (loss) . . . . . . . . . . . . . . . $ (10,000) The company&#39;s only variable cost is the $6 fee it pays to another company to reproduce the software on fl oppy diskettes, print manuals, and package the result in an attractive box for sale to consumers. Monthly fi xed selling and administrative expenses are $960,000. The company&#39;s marketing manager has been arguing for some time that the software is priced too high. She estimates that every 5% decrease in price will yield an 8% increase in unit sales. The marketing manager would like your help in preparing a presentation to the company&#39;s owners concerning the pricing issue. Required: 1. To help the marketing manager prepare for her presentation, she has asked you to fi ll in the blanks in the following table. The selling prices in the table were computed by successively decreasing the selling price by 5%. The estimated unit sales were computed by successively increasing the unit sales by 8%. For example, $23.75 is 5% less than $25.00 and 54,000 units is 8% more than 50,000 units. 774 Appendix A Selling Price Estimated Unit Sales Sales Variable Cost Fixed Expenses Net Operating Income $25.00 50,000 $1,250,000 $300,000 $960,000 $(10,000) $23.75 54,000 $1,282,500 $324,000 $960,000 $ (1,500) $22.56 58,320 ? ? ? ? $21.43 62,986 ? ? ? ? $20.36 68,025 ? ? ? ? $19.34 73,467 ? ? ? ? $18.37 79,344 ? ? ? ? $17.45 85,692 ? ? ? ? $16.58 92,547 ? ? ? ? $15.75 99,951 ? ? ? ?"
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