Question

Kirgan, Inc., manufactures a product with the following costs: Per Year Per Unit $26.40 $15.40 $ 3.60 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $1,545,600 $ 3.50 $1,514,700 The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 96,000 units per year. The company has invested $370,000 in this product and expects a return on investment of 16%. The selling price based on the absorption costing approach would be closest to: (Do not round Intermediate calculations.) 10 0 0 0 $81.40 $83.20 $50.85

Answer 1

1.

Cost for 96000 units
Direct Material	$     2,534,400	=96000*26.4
Direct Labor	$     1,478,400	=96000*15.4
Variable Manufacturing Overhead	$        345,600	=96000*3.6
Fixed Manufacturing Overhead	$     1,545,600
Variable Selling and administrative expenses	$        336,000	=96000*3.5
Fixed Selling and administrative expenses	$     1,514,700
Total Cost	$     7,754,700
Target Profit	$           59,200	=370000*16%
Sales Revenue	$     7,813,900
Units sold	96000
Selling price per unit	$             81.40

Answer is b. $81.40

2.

Product Cost	$     1,946,800
Selling and administrative expenses	$        829,600
Target Profit	$           51,300
Sales Revenue	$     2,827,700
Units sold	31000
Selling price per unit	$             91.22

Answer is a. $91.22