Question:
1. In April, Steinhardt, Inc., sold 50 air conditioners for $200 each. Costs included material of $50 per unit, direct labor of $30 per unit, and factory overhead at 100 percent of direct labor cost.
Effective May 1, material costs decreased 5 percent per unit and direct labor costs increased 20 percent per unit. Assume that the expected May sales volume is 50 units, the same as for April.
(a) Calculate the sales price per unit that will produce the same ratio of gross profit, assuming no change in the rate of factory overhead in relation to direct labor costs. (b) Calculate the sales price per unit that will produce the same ratio of gross profit, assuming that $10 of the April factory overhead consists of fixed costs and that the variable factory overhead ratio to direct costs is unchanged from April.