Question

B U А. А 01 mark) Revelstoke Corporation manufactures product that has the following Per year Per unit WOD 5.00 4.00 Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable SG&A expenses Fixed S&A expenses 5360.000 5.00 120.000 The company uses the absorption costing approach to cost.plus pricing. The pricing calculations are based on budgeted production and sales of 30,000 units per year, The company has invested 5600,000 in this product and expects a return on investment of 15%. Required: a) Compute the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach.

Answer 1

a)	Mark up on absorption cost			=	8.33%	($ 90000 / $ 1080000)
b)	Target selling price			=	$ 11,70,000.00

Workings:

	Direct Materials				$   1,80,000.00	($ 6 x 30000)
	Direct Labor				$   1,50,000.00	($ 5 x 30000)
	Variable Manufacturing Overhead				$   1,20,000.00	($ 4 x 30000)
	Fixed Manufacturing Overhead				$   3,60,000.00
	Product Cost				$   8,10,000.00
	Variable SG&A Expenses				$   1,50,000.00	($ 5 x 30000)
	Fixed SG&A Expenses				$   1,20,000.00
	Total Cost				$ 10,80,000.00
Add:	Expected return				$      90,000.00	($ 600000 x 15%)
	Selling price				$ 11,70,000.00