Skipmar 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 | $ 40.00 |
| Variable cost of goods sold | 12.00 |
| Variable selling expenses | 10.60 |
| Variable administrative expenses | 3.00 |
| Annual fixed expenses: | |
| Overhead | $7,800,000 |
| Selling expenses | 1,650,000 |
| Administrative expenses | 3,150,000 |
Skipmar can produce 1.5 million cases a year. The projected net income for the coming year is expected to be $1.8 million. Skipmar is subject to a 40% income tax rate.
During the planning sessions, Skipmar's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold will increase 15% 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 Skipmar need to achieve in the coming year |
to earn the projected net income of $1.8 million?
| b. | What price would Skipmar need to charge for the briefcase in the coming year |
to maintain the current year's contribution margin ratio?
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