Jason Craven (JC) Incorporated is a public company that produces and distributes high quality surround sound speakers. The companys suppliers provide a deep discount if it makes large purchases. As a result, JCs production volume is often greater than its sales volume for a given period. In 2019, the company produced 120,000 speakers, but sold only 55,000 speakers. The company provides the following cost information:

Variable Cost per Unit
Direct Materials	$12
Direct Labor	$20
Variable Manufacturing Overhead Costs	$8
Variable General and Administrative Costs per unit sold	$5
Annual Fixed Costs
Fixed Manufacturing Overhead Costs	$600,000
Fixed General and Administrative Costs	$35,000

The company uses the cost plus pricing system to determine the appropriate selling price for its speakers. If the company decides to use the absorption cost as the base, the markup percentage would be 25%. If the company decides to use the variable manufacturing cost as the base, the markup percentage would be 35%.

a) Calculate the selling price for each of the two pricing strategies (i.e. using the variable manufacturing cost or the absorption cost as the base).

b) For each of the selling prices calculated in part a), create an income statement to determine income from operations. Which selling price will generate the highest income from operations?

Jason Craven Incorporated
Income Statement
For the Year Ending December 31, 2019

Jason Craven Incorporated
Income Statement
For the Year Ending December 31, 2019

c) The companys sales manager estimates that the speakers cannot be priced more than $60. At this price, management thinks that they can sell 50,000 speakers. The initial investment in producing the speakers is $1,500,000 and the companys desires a 20% on return on investment. Using the target costing method, should the company set the price per speaker at $60?