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Maxwell Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations:

Variable costs per unit: Manufacturing: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . $18

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7

Variable manufacturing overhead . . . . . . . . . . . . $2

Variable selling and administrative . . . . . . . . . . . . . . $2

Fixed costs per year: Fixed manufacturing overhead . . . . . . . . . . . . . . . . $200,000

Fixed selling and administrative expenses . . . . . . . $110,000

During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the companys product is $50 per unit.

Required:

2. Assume that the company uses variable costing:

a. Compute the unit product cost

. b. Prepare an income statement for the year.

3. The companys controller believes that the company should have set last years selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the companys gross margin by $2,000 and its net operating income by $4,000. Assuming the controllers estimates are accurate, do you think the price increase would have been a good idea?

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