Ionic Charge is a newly organized manufacturing business that plans to manufacture and sell 60,000 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 per Unit
Manufacturing costs:
Direct materials					$	25
Direct labor						15
Manufacturing overhead	$	500,000				8
Period costs:
Selling expenses						2
Administrative expenses		300,000
Totals	$	800,000			$	50

Required:

What should the company establish as the sales price per unit if it sets a target of earning an operating income of $700,000 by producing and selling 60,000 units during the first year of operations?

(Hint: First compute the required contribution margin per unit.)

Exercise 4 - Explanation:

Required contribution margin per unit:

Budgeted operating income	$	700,000
Fixed costs		800,000
Total required contribution margin	$	1,500,000
Number of units to be produced and sold		60,000
Required contribution margin per unit ($1,500,000 60,000 units)	$	25

Required sales price per unit:

Required contribution margin per unit	$	25
Variable costs and expenses per unit		50
Total required unit sales price	$	75