| Budgeted Service Department Cost Allocation: Pricing a New Product (LO2)

/’ Pro-Trim Company is adding a new diet food concentrate called Body Trim to its line of bodybuilding and exercise products. A plant is being built for manufacturing the new product. Management has decided to price the new product based on a 100 percent markup on total manufacturing costs. A direct cost budget for the new plant projects that direct department costs of $2,450,000 will be incurred in producing an expected normal output of 700,000 pounds of finished product. In addition, indirect costs for Administration and Technical Support will be shared by Body Trim with the two exercise products divisions, Commercial Products and Retail Products. Budgeted annual data to be used in making the

. allocations are summarized here.

238 Chapter 7 | Additional Topics in Product Costing Technical | Commercial Retail | Body Administration Support Products Products” Trim Number of employees ...... 5 5 50 30 20 Amount of technical support time (hours) ...... 500 = 1,500 1,250 750 Direct costs are budgeted at $202,500 for the Administration Department and $240,000 for the Technical Support Department.

Required

a. Using the step method, determine the total direct and indirect costs of Body Trim.

b. Determine the selling price per pound of Body Trim. (Round calculations to the nearest cent.)