The salespeople at Meadstar, a notebook manufacturer, commonly pressured operations managers to keep costs down so the company could give bigger discounts to large customers. Sam, the operations supervisor, leaked the $0.80 total unit cost to salespeople, who were thrilled, since that was slightly lower than the previous year’s unit cost. Budgets were not yet finalized for the upcoming year, so it was unclear what the target unit cost would be. Sam knew the current year’s operating capacity was two million notebooks, and Meadstar produced and sold just that many. The detailed breakdown of the $0.80 total unit cost is as follows. Direct material $0.10 Direct labor 0.20 Variable overhead 0.10 Fixed overhead 0.40 Total cost per unit $0.80 Required What were Meadstar’s total fixed costs? If the average selling price was $1.95, how much gross margin did the company generate? If Meadstar incurs exactly the same total fixed costs but produces and sells only 1.6 million notebooks this coming year, what happens to the fixed cost per unit? In turn, what would the total cost per unit be? If the average selling price stays at $1.95, how much gross margin would be earned? If Meadstar reworks its equipment layout and processes to increase the relevant range of activity to 2.5 million notebooks without incurring more fixed costs, what happens to the fixed cost per unit if it is able to make and sell that larger quantity of units? What would the total cost per unit be under this scenario? If the average selling price stays at $1.95, how much gross margin would be earned? How would the salespeople react to options (b) and (c) above? How deep a discount could salespeople give customers under scenario (c) and still generate the same total gross margin as last year?