(Break-even point and selling price) Specialty Steel, Inc. will manufacture and sell 190 comma 000190,000 units next year. Fixed costs will total $340 comma 000340,000, and variable costs will be 6060 percent of sales. a. The firm wants to achieve a level of earnings before interest and taxes of $270 comma 000270,000. What selling price per unit is necessary to achieve this result? b. Set up a pro forma income statement to verify your solution to part a.

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hoangkhangpham94 hoangkhangpham94 · Answer 1 · 2019-12-03T16:47:49+01:00

Answer:

a. Selling price per unit: $8.15

b. Pro forma income statement given selling price per unit is $8.15:

Sales revenue ( 8.15 x 190,000) $ 1,548,500

Variable cost (60.6% x 1,548,500) $ (938,391)

Fixed cost $ (340,000)

EBIT $270,109

=> Thus, at the selling price per unit at $8.15, the firm will achieved targeted EBIT

Explanation:

Calculation for selling price per unit as below:

Targeted Sales Revenue = (Targeted EBIT + Fixed cost) / Contribution margin ration = ( 270,000 + 340,000 ) / ( 1 - 60.60%) = $1,548,223.35.

Tarted selling price per unit = Targeted Sales Revenue / Unit sold = 1,548,223.35 / 190,000 = $8.15 per unit.