(Pro forma results) Katherine Company has decided to reprice its sole prod¬ uct, a metal desk, for the upcoming year. Current variable production cost is $50 per unit, and total fixed costs are $2,000,000. Fixed manufacturing costs are 80 percent of total fixed costs and are allocated to the product based on the number of units produced. There are no variable selling or administra¬ tive costs. Variable and fixed costs are expected to increase by 15 and 8 percent, respectively, next year. Estimated production and sales are 300,000 units. Selling price is normally set at full production cost plus 25 percent, rounded to the nearest dollar.

a. What is the expected full production cost per unit of Katherine Com¬ pany’s desks for next year?

b. What is the product’s expected selling price?

c. What is pro forma income before tax using the selling price computed in part (b)?

d. What would be the required selling price (rounded to the nearest dollar) for the company to earn income before tax equal to 25 percent of sales?

LO.1