Slocum Company has determined the following information about a new product. The

Question

Slocum Company has determined the following information about a new product. The manufacturing process used for the product is very complex and it has a higher proportion of indirect costs than direct costs. The company wants a 100% markup on cost. The following data is available: (SHOW WORK )

Product cost according to traditional costing system $4.00 per unit
Product cost according to activity-based costing system $7.00 per unit

What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00

Explanation / Answer

Correct Option --- (D) $14

Explanation and calculations

Activity based costing helps calculating the correct cost of units produced by complex processes, hence cost of goods ascertained by ABC system will be taken as the cost of units produced.

Cost of Goods as per Activity based costing plus a 100% markup will make up the price of new product.

ABC cost=                          $7

Add: 100 % Markup+      $7

Price =                                  $14

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