Question

Absorption costing and product pricing LO P4 A manufacturer reports the following information on its product. Direct materials cost $ 41.00 per unit Direct labor cost $ 11.10 per unit Variable overhead cost $ 5.10 per unit Fixed overhead cost $ 1.10 per unit Target markup 50 % Compute the target selling price per unit under absorption costing.

Answer 1

To compute the target selling price per unit under absorption costing, we need to consider the total cost per unit. The target selling price can be calculated by adding the target markup percentage to the total cost per unit.

Step-by-step explanation:

To compute the target selling price per unit under absorption costing, we need to consider the total cost per unit. Total cost per unit can be calculated by summing up the direct materials cost, direct labor cost, variable overhead cost, and fixed overhead cost. Then, we can add the target markup percentage to the total cost per unit to determine the target selling price per unit.

Here is the calculation:

Total cost per unit = Direct materials cost + Direct labor cost + Variable overhead cost + Fixed overhead cost

Total cost per unit = $41.00 + $11.10 + $5.10 + $1.10 = $58.30

Target selling price per unit = Total cost per unit + (Target markup percentage * Total cost per unit)

Target selling price per unit = $58.30 + (0.50 * $58.30) = $87.45

Answer 2

$87.45 per unit

Step-by-step explanation:

The computation of the target selling price per unit is shown below:

= Direct material cost per unit + Direct labor cost per unit + variable overhead cost per unit + Fixed overhead cost per unit + target markup cost per unit

= $41 per unit + $11.10 per unit + $5.10 per unit + $1.10 per unit + $29.15 per unit

= $87.45 per unit

The computation of the target markup cost per unit is shown below:

= (Direct material cost per unit + Direct labor cost per unit + variable overhead cost per unit + Fixed overhead cost per unit) × markup

= ($41 per unit + $11.10 per unit + $5.10 per unit + $1.10 per unit) × 50%

= $29.15 per unit