(Pro forma results) The Rabb Company is attempting to set a new selling price for its single product, a metal file cabinet, for the upcoming year. The current variable cost is $40 per unit and total fixed costs are $2,000,000. Fixed manu¬ facturing 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 ad¬ ministrative costs. Variable and fixed costs are expected to increase by 15 percent and 8 percent, respectively, next year. Estimated production and sales are 200,000 units. Selling price is normally set at full production cost plus 25 percent.

a. What is the expected full production cost per unit of Rabb’s hie cabinets for next year?

b. What is the expected selling price of the product?

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

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

LO1