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Bahrain Corporation makes a product with the following costs: Item Per Unit Per Year Direct Materials $91 Direct Labor 111.5 Variable Manufacturing Overhead 14.5 Fixed

Bahrain Corporation makes a product with the following costs:

Item

Per Unit

Per Year

Direct Materials

$91

Direct Labor

111.5

Variable Manufacturing Overhead

14.5

Fixed Manufacturing Overhead

6,480,000

Variable Selling and Administrative Expenses

8

Fixed Selling and Administrative Expenses

6,870,000

The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 60,000 units per year. The company has invested $16,000,000 in this product and expects a return on investment of 15%.

Required:

  1. Compute the unit cost?

  1. compute the mark up percentage?
  2. Compute the selling price per unit?
  3. Assume that the company can produce and sell only 50,000 units, compute the net income or net loss?
  4. If you were the manager of this corporation, and you expected that strong competition next year, which pricing approach you will use? And Why?

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