Mendenhall Company is about to enter the highly competitive personal electronics market with a new type of tablet. In anticipation of future growth, the company has leased a large manufacturing facility and has purchased several expensive pieces of equipment. In 2017, the company's first year, Mendenhall Company budgets for production and sales of 22,500 units, compared with its practical capacity of 67,500. The company's cost data are as follows: (Click the icon to view the company's cost data.) Read the requirements. Requirement 1. Assume that Mendenhall Company uses absorption costing and uses budgeted units produced as the denominator for calculating its fixed manufacturing overhead rate. Selling price is set at 120% of manufacturing cost. Compute Mendenhall Company's selling price. Begin by determining the formula to compute the selling price. Data Table - X Selling price Requirements - X Variable manufacturing costs per unit: Direct materials $ 25 32 Direct manufacturing labor Manufacturing overhead Fixed manufacturing overhead 15 $ 742,500 Print Done 1. Assume that Mendenhall Company uses absorption costing and uses budgeted units produced as the denominator for calculating its fixed manufacturing overhead rate. Selling price is set at 120% of manufacturing cost. Compute Mendenhall Company's selling price. 2. Mendenhall Company enters the market with the selling price computed previously. However, despite growth in the overall market, sales are not as robust as the company had expected, and a competitor has priced its product at $100.00. Mr. Tom Downs, the company's president, insists that the competitor must be pricing its product at a loss and that the competitor will be unable to sustain that. In response, Mendenhall Company makes no price adjustments but budgets production and sales for 2018 at 20,625 units. Variable and fixed costs are not expected to change. Compute Mendenhall Company's new selling price. Comment on how Mendenhall Company's choice of budgeted production affected its selling price and competitive position. 3. Recompute the selling price using practical capacity as the denominator level of activity. How would this choice have affected Mendenhall Company's position in the marketplace? Generally, how would this choice affect the production-volume variance? Print Done