Reference no: EM131784316

Assignment

Solving for unknown; cost-volume-profit and budget analysis (adapted from a problem by D.O. Green). A partial income statement of IBN Corporation for Year 0 follows. The company uses just-in-time inventory, so production each year equals sales. Each dollar of finished product produced in Year 0 contained $0.50 of direct materials, $0.33333 of direct labor, and $0.16667 of overhead costs. During Year 0, fixed overhead costs were $40,000. No changes in production methods or credit policies are anticipated for Year 1.

Partial Income Statement for Year 0
Sales (100,000 units at $10)	600,000
Cost of goods sold	$400,000
Gross margin	$150,000
Selling costs	$150,000
Administrative costs	100,000	$250,000
Operating profits	$150,000

Management has estimated the following changes for Year 1:

• 30% increase in number of units sold
• 20% increase in unit cost of materials
• 15% increase in direct labor cost per unit
• 10% increase in variable overhead cost per unit
• 5% increase in fixed overhead costs
• 8% increase in selling costs because of increased volume
• 6% increase in administrative costs arising solely because of increased wages

There are no other changes.

a. What must the unit sales price be in Year 1 for IBN Corporation to earn a $200,000 operating profit?