A company using activity based pricing marks up the direct cost of goods by 0.24

Question

A company using activity based pricing marks up the direct cost of goods by 0.24 plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $7.00 per order placed; $2.40 per separate item ordered; $29.20 per return. A customer places 8 orders with a total direct cost of $2,900, orders 293 separate items, and makes 7 returns. What will the customer be charged? B.A new product is being designed by an engineering team at Golem Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target costing methodology. An analysis of similar products on the market suggests a price of $121.00 per unit. The company requires a profit of 0.29 of selling price. How much is the target cost per unit?

Explanation / Answer

marks up on direct cost of goods = 0.24

plus charges customers for indirect costs based on the activities utilized by the customer

Indirect costs are charged as follows:

$7.00 per order placed;

$2.40 per separate item ordered;

$29.20 per return.

Total direct cost of $2,900

Mark up on direct cost = 2,900 * .24 = $696

A customer places 8 orders = 8* 7 = $56

orders 293 separate items, = 293 * 2.4 = 703.2

makes 7 returns. = 7*29.20 = 204.4

Customer be charged = $ 4559.6

B) target cost per unit = target selling price - profit per unit

= $121.00 per unit - 0.29*$121.00

= $85.91

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