Ionic Charge is a newly organized manufacturing business that plans to manufacture and sell 50,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): Manufacturing costs: Direct materials. Direct labor Manufacturing overhead Period costs: Selling expenses Administrative expenses Totals Fixed $ 900,000 600,000 $ 1,500,000 Variable per Unit $ 40 21 16 3 $80 Required: a. What should the company establish as the sales price per unit if it sets a target operating income of $500,000 by producing and selling 50,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) b. At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.) c. What will be the margin of safety (in dollars) if the company produces and sells 50,000 units at the sales price computed in part a?

Ionic Charge is a newly organized manufacturing business that plans to manufacture and sell 50,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): Manufacturing costs: Direct materials. Direct labor Manufacturing overhead Period costs: Selling expenses Administrative expenses Totals Fixed $ 900,000 600,000 $ 1,500,000 Variable per Unit $ 40 21 16 3 $80 Required: a. What should the company establish as the sales price per unit if it sets a target operating income of $500,000 by producing and selling 50,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) b. At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.) c. What will be the margin of safety (in dollars) if the company produces and sells 50,000 units at the sales price computed in part a?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

Ionic Charge is a newly organized manufacturing business that plans to manufacture and sell 50,000 units per year of a new product.
The following estimates have been made of the company's costs and expenses (other than income taxes):
Manufacturing costs:
Direct materials
Direct labor
Manufacturing overhead
Period costs:
Selling expenses
Administrative expenses
Totals
Fixed
$ 900,000
600,000
$ 1,500,000
Variable per
Unit
$ 40
21
16
3
$ 80
Required:
a. What should the company establish as the sales price per unit if it sets a target operating income of $500,000 by producing and
selling 50,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.)
b. At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units
produced are sold.)
c. What will be the margin of safety (in dollars) if the company produces and sells 50,000 units at the sales price computed in part a?
d. Assume that the marketing manager thinks that the price of this product must be no higher than $100 to ensure market penetration.
Will setting the sales price at $100 enable lonic Charge to break even, given the plans to manufacture and sell 50,000 units?

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Step 2: Calculation for selling price per unit

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Step 3: Calculation for break-even sales

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Step 4: Calculation for margin of safety

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Step 5: Computation of revised break-even:

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