Question

Aldean Company wants to use absorption cost-plus pricing to set the selling price on a new product. The company plans to invest $290,000 in operating assets to produce and sell 29,000 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	$	9.00
Direct labor	$	7.00
Variable manufacturing overhead	$	4.00
Fixed manufacturing overhead				$	239,250
Variable selling and administrative expenses	$	3.00
Fixed selling and administrative expenses				$	41,035

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.)

Answer 1

Investment Required Return @ 18% 290000 52200 Direct Material Direct Labor Variable Manufacturing Overheads Fixed Overheads costs 261000 203000 116000 2392501 Cost of goods Sold 819250 Variable Selling Overheads Fixed Selling and administrative costs Total Cost of sale 87000 41035 32.665 947285 Required Return Sale Sale Units Sale Price 522001 999485 29000 34.465 34.465 1 Unit Produc Cost 32.665 2 Markup on Cost Markup for return total absorption cost of sale % of Markup on cost (1.8/ 32.665) 1.8 32.665 5.51% 32.67 3 Sale Price Cost Markup Sale Price (32.67*105.51%) 5.51% 34.46