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Atlas Inc. is a newly organized manufacturing business that plans to manufacture and sell 500,000 units per year of a new product. The following
Atlas Inc. is a newly organized manufacturing business that plans to manufacture and sell 500,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): fixed Manufacturing costs variable per unit DM 28 DL 22 MOH 4.400.000 15 Period costs Selling 1 Administrative OpEx 3.600.000 8.000.000 66 Instructions a) What should the company establish as the sales price per unit if it sets a target of earning an operating income of 3,000,000 by producing and selling 500,000 units during the first year of operations? b) At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.) c) What will be the margin of safety (in dollars) if the company produces and sells 500,000 units at the sales price computed in part a? Using the margin of safety, compute operating income at 500,000 units. d) Assume that the marketing manager thinks that the price of this product must be no higher than 78 to ensure market penetration. Will setting the sales price at 78 enable Thermal Tent to break even, given the plans to manufacture and sell 500,000 units? Explain your answer.
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