Exercise 1: (28 marks)

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 companys costs and expenses (other than income taxes):

fixed

variable

Manufacturing costs

per unit

DM

28

DL

22

MOH

4.400.000

15

Period costs

Selling

1

Administrative

3.600.000

OpEx

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 answ

Task This assessment consists of 3 exercises. The task is individual and off-line. Please submit your work displaying all computations and formulas used. If the obtained results are unexplained, the grading will be materially lower. For your safety and potential later forensics, upload a well-structured and printable spreadsheet file into Turn-it-ln. Exercise 1: (28 marks) Allas 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): 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