Schools Systems supplies a particular type of office chair tolarge retailers such as Target, Costco, and Office max. Scholes isconcerned about the possible effects of inflation on itsoperations. Presently, the company sells 80,000 units for $60 perunit. The variable production costs are $30, and fixed costs amountto $1,400,000. Production engineers have advised management thatthey expect unit labor costs to rise by 15% and unit materialscosts to rise by 10% in the coming year. Of the $30 variable costs,50% are from labor and 25% are from materials. Variable overheadcosts are expected to increase by 20%. Sales prices cannot increasemore than 10%. It is also expected that fixed costs will rise by 5% as a result of increased taxes and other miscellaneous fixed charges.
The company wishes to maintain the same level of profit inreal dollar terms. It is expected that to accomplish thisobjective, profits must increase by 6% during the year.
Required:
a) Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
b) Compute the volume of sales and the dollar sales levelnecessary to provide the 6% increase in profits, assuming that themaximum price increase is implemented.
c) If the volume of sales were to remain at 80,000 units, whatprice change would be required to attain the 6% increase inprofits?