Sunset Company’s unit costs of manufacturing and selling a given item at the planned activity level of 20,000 units per month are as follows:
Manufacturing costs
Direct materials ....... $4.30
Direct labor ......... 0.95
Variable overhead ....... 1.10
Fixed overhead ........ 1.05
Selling expenses
Variable .......... 2.90
Fixed ........... 1.05
Ignore income taxes in all requirements. These four parts have no connection with each other.
1. Compute the planned annual operating income at a selling price of $19 per unit.
2. Compute the expected annual operating income if the volume can be increased by 12% when the selling price is reduced to $16. Assume that the implied cost behavior patterns are correct.
3. The company desires to seek an order for 6,800 units from a foreign customer. The variable selling expenses for the order will be 30% less than usual, but the fixed costs for obtaining the order will be $8,160. Domestic sales will not be affected. Compute the minimum break-even price per unit to be considered.
4. The company has an inventory of 7,000 units of this item left over from last year’s model. These must be sold through regular channels at reduced prices. The inventory will be valueless unless sold this way. What unit cost is relevant for establishing the minimum selling price of these 7,000 units?