In: Accounting
You are advising the management at the company ABC regarding their pricing decisions in relation to a new product. Existing information is as follows:
Direct materials $5 per unit; direct labor $3 per unit; variable manufacturing overhead $4 per unit; variable selling and administrative expenses $3 per unit; fixed manufacturing overhead expenses $60,000; and fixed selling and administrative expenses $70,000.
There is an expectation that the company will sell 20,000 units.
Determine the unit product cost if the company uses an absorption costing approach in its cost-plus pricing.
Determine the target selling price given that the company uses a 20 percent markup percentage.
It has been brought to your attention that the company is making an investment of $200,000 in the making, marketing, and distribution of the 20,000 units of their new product. The management require a 40 percent return on this investment. Calculate the markup percentage on absorption costing given this information.
If the company only sells 15,000 units at $18 per unit what would be the return on investment?
Describe a limitation of the absorption costing approach to costing.