Chapter 8, Problem 8.7AP

(a)

To determine

Absorption-cost pricing: This pricing approach is used by the companies to set the target selling price based on only manufacturing costs, excluding selling and administrative expenses, plus desired profit.

Target selling price: This is the selling price set by company to cover the costs incurred and a desired profit.

Formula:

$\text{Target selling price = Cost + Markup}\left(\text{Profit}\right)$

To determine: The target selling price per unit, using absorption-cost pricing

(b)

To determine

Variable-cost pricing: This pricing approach is used by the companies to set the target selling price based on all variable manufacturing costs, but fixed costs, plus desired profit.

To determine: The target selling price per unit, using variable-cost pricing