Kipmar Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes.
Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80.00
Variable cost of goods sold . . . . . . . . . . . . . . 24.00
Variable selling expenses . . . . . . . . . . . . . . . . 21.20
Variable administrative expenses . . . . . . . . . 6.00
Annual fixed expenses Overhead . . . . . . . . . $7,800,000
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,550,000
Administrative expenses . . . . . . . . . . . . . . . . . 3,250,000
Kipmar can produce 1.5 million cases a year. The projected net income for the coming year is expected to be $1.8 million. Kipmar is subject to a 40% income tax rate.
During the planning sessions, Kipmar’s managers have been reviewing costs and expenses. They estimate that the company’s variable cost of goods sold will increase 20% in the coming year and that fixed administrative expenses will increase by $150,000. All other costs and expenses are expected to remain the same.
Required
a. What amount of sales revenue will Kipmar need to achieve in the coming year to earn the projected net income of $1.8 million?
b. What price would Kipmar need to charge for the briefcase in the coming year to maintain the current year’s contribution margin ratio?
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