Question

​(​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.

Answer 1

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.