Question 9.2

Vision Limited manufactures a product that has the following costs:

	Per unit	Per year
Direct materials	$6.00
Direct labour	5.00
Variable manufacturing overhead	4.00
Fixed manufacturing overhead		$360,000
Variable SG&A expenses	5.00
Fixed SG&A expenses		120,000

The company applies the absorption costing approach to cost-plus pricing. The calculations are based on budgeted production and sales of 30,000 units per year. The company has spent $600,000 on this product and expects a return on investment of 15%. Required: a) Calculate the markup on absorption cost.

b) Compute the target selling price of the product using the absorption costing approach.