Lerner Inc. has provided the following data for one of its products: Direct mate

Question

Lerner Inc. has provided the following data for one of its products:

Direct materials

$8

Direct labor

$7

Variable manufacturing overhead

$2

Variable SG&A expenses

$3

The company produces and sells 15,000 units of this product each year. Fixed manufacturing overhead cost is $15,000 per year and fixed SG&A expenses are $30,000 per year. If the company uses the absorption costing approach to cost- plus pricing and desires a 50% mark-up, the selling price per unit would be?

a) $27.00
b) $34.50
c) $23.00
d) $31.50

Direct materials

$8

Direct labor

$7

Variable manufacturing overhead

$2

Variable SG&A expenses

$3

Explanation / Answer

d) $31.50

Direct Materials                                 $8
Direct labor                                       $7
Variable manufacturing overhead       $2
Variable SG&A expenses                    $3
Fixed manufacturing overhead
             $15,000/15,000                   $1
Unit product cost                        $21.00
Add : Mark-up 50%                     $10.50
Selling price per unit                  $31.50

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