BACKGROUND: Bogamill Corp. currently has annual fixed costs of $1,200,000. Bogamill manufactures only one product, which it sells at a price of $4.65 per unit. The product's variable cost per unit is $3.40.

With the current information, Bogamill must sell 960,000 for its operations to break even.

The firm's CFO wants the firm to generate operating income (EBIT) of $1,500,000. So now, the firm must sell 2,160,000 units.

QUESTION: Bogamill's marketing and sales director doesn't think the market for the firm's goods is big enough to sell enough units to make the profit the CFO wants. In fact, she thinks the firm will be able to sell only about 1,800,000 units. However, she think the demand for Bogamill's products is relatively inelastic and so the firm can increase the sales price. Assuming the firm can sell 1,800,000 units, what price must it set to meet the CFO's EBIT goal ($1,500,000)?

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