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Thermal Tent - Problem 20.1 A Setting Sales Price and...

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Problem 20.1 A: Setting Sales Price and Computing the Break-Even Point Thermal Tent Inc. is a newly organized manufacturing business that plans to manufacture and sell 50,000 units per yr. of a new product. The following estimates have been made of the company’s costs and expenses (other than income taxes). Fixed Variable per Unit Manufacturing costs: Direct materials………………………… $47 Direct labor…………………………….. $32 Manufacturing overhead…………… ..... $340,000 $ 4 Period costs: Selling expenses………………………. $1 Administrative expenses……………… $200,000 TOTALS……………………………………..= $540,000 = $84 Instructions: a.) What should the company establish as the sales price per unit if it sets a target of earning an operating income of $260,000 by producing and selling 50,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) Desired sales = fixed cost + desired operating income Sales price per unit – variable cost per unit
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