Orion Inc., is a newly organized manufacturing business that plans to manufacture and sell 30,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): Variable Fixed per Unit Manufacturing costs: Direct materials.. Direct labor... Manufacturing overhead....$440,000 $ 38 47 Period costs: Selling expenses. Administrative expenses.. 360,000 $800,000 $100 Totals.. a. What should the company establish as the sales price per unit if it sets a target of earning an operating income of $400,000 by producing and selling 30,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) 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.) b What will be the margin of safety (in dollars) if the company produces and sells 30,000 units at the sales price computed in part a? ! Assume that the marketing manager thinks that the price of this product must be no higher than $132 to ensure market penetration. Will setting the sales price at $132 enable Orion to break even, Riven the plans to manufacture and sell 30.000 units? Explain your answer. "
Orion Inc., is a newly organized manufacturing business that plans to manufacture and sell 30,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): Variable Fixed per Unit Manufacturing costs: Direct materials.. Direct labor... Manufacturing overhead....$440,000 $ 38 47 Period costs: Selling expenses. Administrative expenses.. 360,000 $800,000 $100 Totals.. a. What should the company establish as the sales price per unit if it sets a target of earning an operating income of $400,000 by producing and selling 30,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) 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.) b What will be the margin of safety (in dollars) if the company produces and sells 30,000 units at the sales price computed in part a? ! Assume that the marketing manager thinks that the price of this product must be no higher than $132 to ensure market penetration. Will setting the sales price at $132 enable Orion to break even, Riven the plans to manufacture and sell 30.000 units? Explain your answer. "
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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Transcribed Image Text:Orion Ic., is a newly organized manufacturing business that plans to manufacture and sell 30,000
units per year of a new product. The following estimates have been made of the company's costs and
expenses (other than income taxes):
Variable
Fixed
per Unit
Manufacturing costs:
Direct materials...........
Direct labor...
Manufacturing overhead...$440,000
$ 38
47
Period costs:
Selling expenses....
Administrative expenses.
.....
360,000
$800,000
$100
Totals ...
a. What should the company establish as the sales price per unit if it sets a target of earning an
operating income of $400,000 by producing and selling 30,000 units during the first year of
operations? (Hint: First compute the required contribution margin per unit.)
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.)
b
b What will be the margin of safety (in dollars) if the company produces and sells 30,000 units at the
sales price computed in part a?
Assume that the marketing manager thinks that the price of this product must be no higher than
$132 to ensure market penetration. Will setting the sales price at $132 enable Orion to break even,
given the plans to manufacture and sell 30,000 units? Explain your answer. !".
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