Bohmker Corporation is introducing a new product whose direct materials cost is $25 per unit, direct labor cost is $13 per unit, variable manufacturing overhead is $9 per unit, and variable selling and administrative expense is $4 per unit. The annual fixed manufacturing overhead associated with the product is $18,000 and its annual fixed selling and administrative expense is $9,000. Management plans to produce and sell 1,000 units of the new product annually. The new product would require an investment of $110,500 and has a required return on investment of 10%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.Required:a. Determine the unit product cost for the new product.b. Determine the markup percentage on
absorption cost for the new product.c. Determine the selling price for the new product using the absorption costing approach.
What will be an ideal response?
a.
The unit product cost is:
| Direct materials | $ | 25 |
| Direct labor | 13 | |
| Variable manufacturing overhead | 9 | |
| Fixed manufacturing overhead ($18,000 ÷ 1,000 units) | 18 | |
| Unit product cost | $ | 65 |
? | ||
| b. | ||
| Selling and administrative expenses = ($4.00 × 1,000) + $9,000 = $13,000 | ||
| ? | ||
| Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ [Unit product cost × Units sales] | ||
| = [(10% × $110,500) + ($13,000)] ÷ [$65 × 1,000] | ||
| = [$11,050 + $13,000] ÷ [$65,000] | ||
| = $24,050 ÷ $65,000 | ||
| = 37% | ||
| ? | ||
| c. | ||
= (1 + 0.37) × $65 = $89.05
You might also like to view...
Describe comprehensive income, net income, and other comprehensive income
Depreciation is considered a source of funds because it does not represent an out-of-pocket expense.
Answer the following statement true (T) or false (F)
Billy owes a liquidated debt of $3000 to Rayna, his personal weight trainer. Billy sends Rayna a check for $300 on which he has marked, "Payment in Full." If Rayna cashes the check she will not be able to successfully sue Billy for the remainder of the debt
a. True b. False Indicate whether the statement is true or false
Which of the following statements is FALSE about customer waiting lines?
a. A waiting line occurs when customers arrive at a service facility at random rather than at predictable intervals. b. A waiting time for a customer is dependent on the number of people waiting for service ahead of that customer. c. Waiting lines can only be physical, with customers waiting in line for service. d. The time it takes to service a customer varies, as each customer’s need for service is often unique.