Red Company is considering introducing a new product, Product X. At a selling price of $24 per unit, management projects sales of 30,000 units. Product X would require an investment of $200,000. The desired return on investment is 12%.

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Compute the target cost per unit of Product X.

Part 2 Question:

Alpha Company is planning to introduce a new product which has the following variable unit costs: direct materials = $25 per unit direct labor cost = $13 per unit variable manufacturing overhead = $9 per unit variable selling and administrative expense = $4 per unit. The annual fixed manufacturing overhead related to the product is $18,000 and its annual fixed selling and administrative expense is $9,000.

Alpha Company expects to produce and sell 1,000 units of the new product annually. The new product would require an investment of $110,500 and has a required return on investment of 10%. Alpha would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.

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a. Determine the unit product cost for the new product.

b. Determine the markup percentage on absorption cost for the new product.

c. Determine the selling price for the new product using the absorption costing approach.