Scholes Systems supplies a particular type of office chair tolarge retailers such as Target, Costco, and Office Max. Scholes isconcerned about the possible effects of inflation on itsoperations. Presently, the company sells 92,000 units for $80 perunit. The variable production costs are $45, and fixed costs amountto $1,520,000. Production engineers have advised management thatthey expect unit labor costs to rise by 15 percent and unitmaterials costs to rise by 10 percent in the coming year. Of the$45 variable costs, 60 percent are from labor and 30 percent arefrom materials. Variable overhead costs are expected to increase by20 percent. Sales prices cannot increase more than 10 percent. Itis also expected that fixed costs will rise by 4 percent as aresult of increased taxes and other miscellaneous fixedcharges.
The company wishes to maintain the same level of profit in realdollar terms. It is expected that to accomplish this objective,profits must increase by 6 percent during the year.
Required:
a. Compute the volume in units and the dollarsales level necessary to maintain the present profit level,assuming that the maximum price increase is implemented.(Do not round intermediate calculations. Round up youranswer for "Volume in units" to the nearest whole number and roundyour answer for "Sales" to the nearest whole dollaramount.)
b. Compute the volume of sales and the dollarsales level necessary to provide the 6 percent increase in profits,assuming that the maximum price increase is implemented.(Do not round intermediate calculations. Round up youranswer for "Volume in units" to the nearest whole number and roundyour answer for "Sales" to the nearest whole dollaramount.)
c. If the volume of sales were to remain at92,000 units, what price change would be required to attain the 6percent increase in profits? Calculate the new price.(Round intermediate calculations of unit cost and finalanswer to 2 decimal places.)
