Connect, Ltd., designs and assembles low-priced portable Internet devices. It estimates that there will be 235,000 requests for its most popular model. Budgeted costs for this product for the year follow.
Description................................................. Budgeted Costs
Casing............................................................... $ 432,400
Battery chamber..................................................... 545,200
Electronics......................................................... 1,151,500
Direct labor......................................................... 1,598,000
Variable indirect assembly costs.................................. 789,600
Fixed indirect assembly costs..................................... 338,400
Selling expenses.................................................... 493,500
General operating expenses....................................... 183,300
Administrative expenses........................................... 126,900
The budget is based on the demand previously stated. The company wants to earn an annual operating income of $846,000.
Last week, four competitors released the following wholesale prices for the year: Competitor A, $25.68; Competitor B, $24.58; Competitor C, $23.96; Competitor D, $25.30.
Connect's portable devices are known for their high quality. However, every $1 price increase above the top competitor's price causes a 55,000-unit drop in demand from the original estimate. (Assume all price changes occur in $1 increments.)
Required
1. Prepare a schedule of total projected costs and unit costs.
2. Use gross margin pricing to compute the anticipated selling price. (Round to two decimal places.)
3. Accounting Connection ▶ Based on competitors' prices, what should Connect's portable device sell for (assume a constant unit cost)? Defend your answer.
4. Accounting Connection ▶ Would your pricing structure in requirement 3 change if the company had only limited competition at this quality level? If so, in what direction? Explain why