$9-40.$ DOWNWARD DEMAND SPIRAL. No More Litter, Inc. $($NML$)$

recently patented its new electronic and remote$-$controlled litter box.

Research indicates that the scooping of the litter is the task most

abhorred by cat owners. NML$\text{'}$s new product automatically "scoops"

and fills the pan with fresh litter from the reservoir.

NML has budgeted $40,000$ units for production and sales in the first year

of operation. Practical capacity is $60,000$ units.

Variable manufacturing costs per unit are as follows:

Fixed manufacturing overhead is $$450,000$ annually.

Required:

$1.$ Assume that NML uses absorption costing and uses master$-$budget utilization as the denominator level for calculating its fixed manufacturing overhead reat. Selling price is set at $150\%$ of total manufacturing cost. Compute NML$\text{'}$s selling price

$2.$ Due to a lagging economy, sales are not as robust as NML anticipated. Adding to the pressure on sales, Mr Charles Buttons, President of NML$,$ believed the stream of newcomers to the market are $(1)$ using his patient$-$protected technology and $(2)$ pricing their products at a loss. No change is made to the pricing model and budgeted sales and production for $2021$ is $30,000$ units. You are the CFO at NML$.$ Explain to Mr Buttons what effect this revised forecast will have in $2021.$

$3.$ Recompute the selling price using practical capacity as the denominator level of activity. How would this choice have affected NML$\text{'}$s position in the marketplace? Generally how would this choice affect the production$-$volume variance?