Per Unit Total Direct materials ... Direct labor ... Variable manufacturing overhead . Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $4 $3 $1 $66,000 ... $1 $45,000 .....
Absorption Costing Approach to Cost-Plus Pricing
Currington Company wants to use absorption cost-plus pricing to set the selling price on a newly remodeled product. The company plans to invest $150,000 in operating assets to produce and sell 12,000 units. Its required
Required:
1. What is the unit product cost for the remodeled product?
2. What is the markup percentage on absorption cost for the remodeled product?
3. What selling price would the company establish for its remolded product using a markup percentage on absorption cost?
4. Suppose the company actually sold only 10,000 units (instead of its planned sales volume of 12,000 units) at the selling price that you derived in requirement 3. What ROI did the company actually earn at this lower sales volume?
5. Assume that the company wants to raise the price of its newly remodeled product with the intention of achieving the product’s desired ROI at the lower sales volume of 10,000 units. Using absorption cost-plus pricing, what would be the revised selling price at this lower sales volume? How might customers react to this new price?
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