Downward demand spiral. Pismo Company manufactures 1 terabyte optical mini-disk systems. The current year’s monthly production and sales are budgeted at 10,000 units. Pismo’s variable manufacturing cost per unit is $240, and its monthly fixed manufacturing overhead costs total $1,200,000. Pismo sets the selling price of its product by adding a 100% markup to the full product cost per unit. The full product cost per unit includes variable manufacturing cost per unit plus the fixed manufacturing overhead cost per unit based on frilly allocating total fixed manufacturing overhead costs to the units produced.

Required 1. Compute Pismo Company’s budgeting selling price.

2. Due to intense competition, Pismo had to revise its budgeted monthly production and sales downward to 8,000 units. Compute Pismo Company’s revised budgeted selling price.

3. Comment on your results in 1 and 2 above.