You are advising the management at company ABC regarding their pricing decisions in relation to a new product. Existing information is as follows: Direct materials $11 per unit; direct labor $3 per unit; variable manufacturing overhead $4 per unit; variable selling and administrative expenses $3 per unit; fixed manufacturing overhead expenses $60,000; and fixed selling and administrative expenses $80,000. There is an expectation that company will sell 30,000 units. Determine the unit product cost if the company uses an absorption costing approach in its cost-plus pricing. Determine the target selling price given that company uses a 15 percent markup percentage. It has been brought to your attention that company is making an investment of $200,000 in the making, marketing, and distribution of the 30,000 units of their new product. The management require a 20 percent return on this investment. Calculate the markup percentage on absorption costing given this information. If the company only sells 25,000 units at $23 per unit what would be the return on investment? Describe a limitation of the absorption costing approach to costing.
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.
You are advising the management at company ABC regarding their pricing decisions in relation to a new product. Existing information is as follows:
Direct materials $11 per unit; direct labor $3 per unit; variable manufacturing
There is an expectation that company will sell 30,000 units.
- Determine the unit product cost if the company uses an absorption costing approach in its cost-plus pricing.
- Determine the target selling price given that company uses a 15 percent markup percentage.
- It has been brought to your attention that company is making an investment of $200,000 in the making, marketing, and distribution of the 30,000 units of their new product. The management require a 20 percent return on this investment. Calculate the markup percentage on absorption costing given this information.
- If the company only sells 25,000 units at $23 per unit what would be the
return on investment ? - Describe a limitation of the absorption costing approach to costing.
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