Problem 3-22A (Algo) Analyzing sales price and fixed cost using the equation method LO 3-1, 3-2, 3-5

Solomon Company is considering adding a new product. The cost accountant has provided the following data:

Expected variable cost of manufacturing	$43	per unit
Expected annual fixed manufacturing costs	$60,000

The administrative vice president has provided the following estimates:

Expected sales commission	$5	per unit
Expected annual fixed administrative costs	$52,000

The manager has decided that any new product must at least break even in the first year.

Required

Use the equation method and consider each requirement separately.

1. If the sales price is set at $64, how many units must Solomon sell to break even?
2. Solomon estimates that sales will probably be 14,000 units. What sales price per unit will allow the company to break even?
3. Solomon has decided to advertise the product heavily and has set the sales price at $68. If sales are 8,000 units, how much can the company spend on advertising and still break even?