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.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.

 

 

  1. Determine the unit product cost if the company uses an absorption costing approach in its cost-plus pricing. 
  2. Determine the target selling price given that company uses a 15 percent markup percentage. 
  3. 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. 
  4. If the company only sells 25,000 units at $23 per unit what would be the return on investment
  5. Describe a limitation of the absorption costing approach to costing. 

 

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