Martin Company uses the absorption costing approach to cost-plus pricing. It is considering the introduction of a new product. To determine a selling price, the company has gathered the following information: Number of units to be produced and sold each year 9,500 Unit product cost $ 36 Estimated annual selling and administrative expenses $ 41,100 Estimated investment required by the company $ 370,000 Desired return on investment (ROI) 12 % Required: 1. Compute the markup percentage on absorption cost required to achieve the desired ROI. 2. Compute the selling price per unit.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Martin Company uses the absorption costing approach to cost-plus pricing. It is considering the introduction of a new product. To determine a selling price, the company has gathered the following information:
| Number of units to be produced and sold each year | 9,500 | ||
| Unit product cost | $ | 36 | |
| Estimated annual selling and administrative expenses | $ | 41,100 | |
| Estimated investment required by the company | $ | 370,000 | |
| Desired |
12 | % | |
Required:
1. Compute the markup percentage on absorption cost required to achieve the desired ROI.
2. Compute the selling price per unit.
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