Ed Vetz & Company specializes in the assembly of home appliances. One division focuses most of its efforts on assembling a standard toaster oven.

Projected costs of this product for 20xx are as follows:

Cost Description Budgeted Costs

Toaster casings ............... $960,000

Electrical components ...........2,244,000

Direct labor .................3,648,000

Variable indirect assembly costs ........ 780,000

Fixed indirect assembly costs ........1,740,000

Selling expenses .............1,536,000

General operating expenses .......... 840,000

Administrative expenses .......... 816,000

The projected costs are based on an estimated demand of 600,000 toaster ovens per year. The company wants to make a $1,260,000 profit. Competitors have just published their wholesale prices for the coming year. They range from $21.60 to $22.64 per oven. The Vetz toaster oven is known for its high quality and modern look. It competes with products at the top end of the price range. Even with its reputation, however, every $.20 increase above the top competitor’s price causes a drop in demand of 60,000 units below the original estimate. Assume that all price changes are in $.20 increments.

Required

1. Prepare a schedule of total projected costs and unit costs.

2. Use gross margin pricing to compute the anticipated selling price.

3. Based on competitors’ prices, what should the Vetz toaster sell for in 20xx (assume a constant unit cost)? Defend your answer. (Hint: Determine the total profit at various sales levels.)

4. Manager Insight: Would your pricing structure in 3 changes if the company had only limited competition at its quality level? If so, in what direction? Explain why.