Question

Aldean Company wants to use absorption cost-plus pricing to set the selling price ona new product. The company plans to invest $250,000 in operating assets to produce and sell 25,000 units. Its required return on investment (ROI) in its operating assets is 18%. The accounting department has provided cost estimates for the new product as shown below: Per Unit Total Direct materials $8.60 $6.60 $3.60 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $201,250 $2.60 $24,250 Required: 1. What is the unit product cost for the new product? (Round intermediate calculations and final answer to 2 decimal places.) 2. What is the markup percentage on absorption cost for the new product? (Round intermediate calculations to 2 decimal places.) 3. What selling price would the company establish for its new product using a markup percentage on absorption cost? (Round intermediate calculations and final answer to 2 decimal places.) 1 Unit product cost 2. Markup percentage on absorption cost 3. Selling price per unit %

Answer 1

1. Calculation of Unit Product Cost Direct materials ADD: Direct Labor ADD: Variable Manufacturing OH ADD: Fixed manufactuirng Ohead ADD: variable selling and administrative Expense ADD: Fixed Selling and administrative Expense Unit Product Cost =$201,250/25,000 8.60 6.60 3.60 8.41 2.60 0.97 30.78 =$24,250/25,000 $ =$8.60*25000 =$6.60*25000 =$3.60*25000 2. Calculation of markup Percenatge Direct materials ADD: Direct Labor ADD: Variable Manufacturing OH ADD: Fixed manufactuirng Ohead ADD: variable selling and administrative Expense ADD: Fixed Selling and administrative Expense Total Prodcut cost Return on investment Markup percentage on absorption cost $ $ $ $ $ $ $ $ 215,000 165,000 65,000 201,250 65,000 24,250 735,500 45,000 =$2.60*25000 =$250,000*18% =$45,000/$735,500*100 $ 3. Calculation of selling price per unit Unit Product cost Markup Percentage Selling Price Per unit 30.78 6.12% 32.66 = $30.78 +($30.78 * 6.12%) $