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SOLVING FOR UNKNOWNCost-Volume-Profit and Budget nal!sis

A partial income statement of IBN Corporation for Year 0 follows. The company uses just-in-time inventory, so pro uctioneach year e!uals sales. "ach ollar of finishe pro uct pro uce in Year 0 containe #0.$0 of irect materials, #0.%%%%% of

irect la&or, an #0.'((() of overhea costs. *urin+ Year 0, fi e overhea costs were # 0,000. No chan+es in pro uctionmetho s or cre it policies are anticipate for Year '.

IBN Cor"orationPartial In#ome Statement for $ear %

ales /'00,000 units #'01 # ',000,000Cost of 2oo s ol # (00,0002ross 3ar+in # 00,000

ellin+ Costs # '$0,000 A ministrative Costs # '00,000 # 4$0,0005peratin+ 6rofits # '$0,000

3ana+ement has estimate the followin+ chan+es for Year '7%08 increase in num&er of units sol408 increase in unit cost of materials'$8 increase in irect la&or cost per unit'08 increase in varia&le overhea cost per unit$8 increase in fi e overhea costs98 increase in sellin+ costs ue to increase volume(8 increase in a ministrative costs ue to increase wa+es

a& '(at must t(e unit sales "ri#e )e in $ear * for IBN Cor"oration to earn a +,%% %%% o"erating "rofit.)& W(at 'ill )e t(e $ear * o"erating "rofit if selling "ri#es are in#reased as )efore )ut unit sales in#rease )! *%/ rat(er t(an0%/. 1Selling #osts 'ould go u" )! onl! *20 of t(e amount "ro3e#ted "re4iousl!&5#& If selling "ri#e in $ear * remains at +*% "er unit (o' man! units must )e sold in $ear * for t(e o"erating "rofit to )e +,%% %%%.

WORKINGSSales +* %%% %%%C523aterial #490,000:a&our #'9(,(($;5 ##'0 6roof

Sales '08 unit +* %%% %%% +* *88 00%C523aterial 408 #%%(,000:a&our '$8 #4' ,(($;5 '08 #'04,((