3-8 Governmental Price Controls Governments periodically exert controls over maximum allowable selling prices. The MN Motorbike Company had achieved the following average operating figures for each of the three years preceding a war that restricted the MN output for consumer markets:

IN MILLIONS Sales, 100,000 units @ $2,000 $200 100%

Variable costs, 100,000 units @ $900 $90 Fixed costs _30 120 Gross profit $ 80 40%

During the first war year, variable costs had remained fairly steady per motorbike, but the output had fallen to 50,000 units. Total fixed costs were unchanged at $30 million.

1. Compute the gross profit in dollars and in percent of sales for a volume of 50,000 units.
2. The company applied for permission to raise its prices so as to provide the same gross profit percent on sales as before. Compute the new selling price that the company requested.