*P21.7A (LO 5), AP Stent Corporation needs to set a target price for its newly designed product EverReady. The following data relate to this new product.

Compute the target price using absorption-cost pricing and variable-cost pricing.

Per Unit

Total

Direct materials $20

Direct labor $40

Variable manufacturing overhead $10

Fixed manufacturing overhead

$1,600,000

Variable selling and administrative expenses $5

Fixed selling and administrative expenses

$1,120,000

The costs shown above are based on a budgeted volume of 80,000 units produced and sold each year. Stent uses cost-plus pricing methods to set its target selling price. Because some managers prefer absorption-cost pricing and others prefer variable-cost pricing, the accounting department provides information under both approaches using a markup of 50% on absorption cost and a markup of 80% on variable cost. Instructions

a. Compute the target price for one unit of EverReady using absorption-cost pricing.

Markup $45

b. Compute the target price for one unit of EverReady using variable-cost pricing.

Markup $60