Kipmar Company produces a molded briefcase that is distributedto luggage stores. The following operating data for the currentyear has been accumulated for planning purposes.
| Sales price | | $40.00 |
| Variable cost of goods sold | | 12.00 |
| Variable selling expenses | | 10.60 |
| Variable administrative expenses | | 3.00 |
| | |
| Annual fixed expenses | | |
| Â Â Â Overhead | | $7,800,000 |
| Â Â Â Selling expenses | | 1,550,000 |
| Â Â Â Administrative expenses | | 3,250,000 |
Kipmar can produce 1,500,000 cases a year. The projected net incomefor the coming year is expected to be $1,800,000. Kipmar is subjectto a 40% income tax rate.
During the planning sessions, Kipmar’s managers have been reviewingcosts and expenses. They estimate that the company’s variable costof goods sold will increase 15% in the coming year and that fixedadministrative expenses will increase by $150,000. All other costsand expenses are expected to remain the same.
What price would Kipmar need to charge for the briefcase in thecoming year to maintain the current year’s contribution marginratio?
