Question
Aldean Company wants to use absorption cost-plus pricing to set the selling price on a new product. The company plans to invest $220,000 in operating
Aldean Company wants to use absorption cost-plus pricing to set the selling price on a new product. The company plans to invest $220,000 in operating assets to produce and sell 22,000 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 | $ | 8.30 | |||
Direct labor | $ | 6.30 | |||
Variable manufacturing overhead | $ | 3.30 | |||
Fixed manufacturing overhead | $ | 173,800 | |||
Variable selling and administrative expenses | $ | 2.30 | |||
Fixed selling and administrative expenses | $ | 108,460 | |||
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.)
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