Sumac & Oak, 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 are as follows:

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 their wholesale prices for the year. Their prices are as follows: Competitor A, $25.68; Competitor B, $24.58; Competitor C, $23.96; Competitor D, $25.30 Sumac & Oak 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.

3. Based on competitors’ prices, what should Sumac & Oak’s portable device sell for (assume a constant unit cost)? Defend your answer.

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