Leekee Shipyards has a new barnacle removing product for ocean going vessels. Th

Question

Leekee Shipyards has a new barnacle removing product for ocean going vessels. The company invests $1,200,000 in operating assets and plans to produce and sell 400,000 units per year. Leekee wants to make a return on investment of 20% each year. Leekee 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 based on the following information: Per Unit Total Direct Materials $ 2.00 Direct Labor $ 1.50 Variable Manufacturing Overhead $ 1.00 Fixed Manufacturing Overhead $ 100,000 Variable Selling and Administrative Expense $ 0.10 Fixed Selling and Administrative Expense $ 100,000

Explanation / Answer

Solution Per unit Total Units 400000 Direct material 2 800000 Direct Labor 1.5 600000 Variable Manufacturing Overhead 1 400000 Fixed Manufacturing Overhead 100000 Variable Selling and Administrative Expenses 0.1 40000 Fixed Selling and Andministrative Expenses 100000 Total Cost 2040000 Desired Profit 240000 Desired Sales 2280000 Sales Price(Price to be charged) 5.7

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