ABC company is preparing its budget for the coming year. They manufacture two specialized products, a backpack and a tent. They estimate they will incur the following costs:
For the backpack:
Direct materials $110,000
Direct labor 90,000
Overhead 80,000
Selling & admin. 45,000
For the tent:
Direct materials 82,500
Direct labor 67,500
Overhead 60,000
Selling and admin. 30,000
The company believes it will sell 5,000 units of each product. They wish to make profit of $300,000. The company maintains the same profit margin (as a percent of costs).
a. Calculate the normal selling price for each product?
b. What would net income be if unit sales of the tent increased by 50% but unit sales of the backpack increased by only 20%?