Ive calculated the variable unit cost...just having trouble with the absoption-c
ID: 2369492 • Letter: I
Question
Ive calculated the variable unit cost...just having trouble with the absoption-cost pricing
The costs shown above are based on a budgeted volume of 80,200 units produced and sold each year. Hansen uses cost-plus pricing methods to set its target selling price. Because some managers prefer absorption-cost pricing and others prefer variable-cost pricing, the department provides information under both approaches using a markup of 53% on absorption cost and a markup of 76.54% on variable cost.
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AP8-7A Hansen Corporation needs to set a target price for its newly designed product EverReady. The following data relate to this new product. Per Unit Total Direct materials $24.00 Direct labor $36.00 Variable manufacturing overhead $13.00 Fixed manufacturing overhead $1,363,400 Variable selling and administrative expenses $5.00 Fixed selling and administrative expenses $1,190,970The costs shown above are based on a budgeted volume of 80,200 units produced and sold each year. Hansen uses cost-plus pricing methods to set its target selling price. Because some managers prefer absorption-cost pricing and others prefer variable-cost pricing, the department provides information under both approaches using a markup of 53% on absorption cost and a markup of 76.54% on variable cost.
Explanation / Answer
Absorption costing approach
Total absorption cost of 80,200 unit = 80200*(24+36+13)+1363400= $7218000
cost per unit = 7218000/80200 = $90
mark-up is 53% for absorption costing
selling price = 1.53*90 = $137.7
total variable cost per unit = 24+36+13 = $73
mark-up = 76.54%
selling price = 1.7654*73 = $128.87
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