Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) The sales price of the T-shirts will be $9.  ∙ Variable cost to manufacture will increase by one-third.  ∙ Fixed costs will increase by 10%.  ∙ The income tax rate of 40% will be unchanged

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)

The sales price of the T-shirts will be $9. 
∙ Variable cost to manufacture will increase by one-third. 
∙ Fixed costs will increase by 10%. 
∙ The income tax rate of 40% will be unchanged. 

The selling price that would maintain the same contribution margin ratio as last year is:
   
$10.00.
   
$8.25.
   
$9.00.
   
$9.50.
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