Breaky Company is launching a new cleaning product for ceramic vases. The compan

Question

Breaky Company is launching a new cleaning product for ceramic vases. The company invests $2,400,000 in operating assets, such as production equipment, and plans to produce and sell 100,000 units per year. Breaky wants to make a return on investment of 25% each year. Breaky needs to know what price to charge for this product. Use the absorption costing approach to determine the markup necessary to make the desired return on investment. Round your answer to two decimals places. Cost information is provided below:
Per Unit Total
Direct Materials $12.00
Direct Labor $7.50
Variable Manufacturing Overhead $2.00
Fixed Manufacturing Overhead $100,000
Variable Selling and Admin. Expense $0.50
Fixed Selling and Admin. Expense $70,000

Selling price= $

Explanation / Answer

1)

Profit = 2,400,000 * 25% = 600,000

profit per unit = 600,000 /100,000 = 6

2)

cost per unit = 12.00(direct material) + 7.50(direct labor) + 2.00(variable manufacturing overhead) + 1.00(fixed manufacturing overhead, 100,000/100,000 = 1.00) + 0.50(variable selling and admin.) + 0.70(fixed selling and admin., 70,000 / 100,000= 0.70) = 23.70

3)

selling price per unit = 6(profit) + 23.70(cost) = 29.70

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