Reference no: EM132536930

You are advising the management at the company ABC regarding their pricing decisions in relation to a new product. Existing information is as follows:

Direct materials $4 per unit;

direct labor $3 per unit;

variable manufacturing overhead $5 per unit;

variable selling and administrative expenses $2 per unit;

fixed manufacturing overhead expenses $40,000; and

fixed selling and administrative expenses $70,000.

There is an expectation that company will sell 20,000 units.

Question 1. Determine the unit product cost if company uses an absorption costing approach in its cost-plus pricing.

Question 2. Determine the target selling price given that company uses a 40 percent markup percentage.

Question 3. It has been brought to your attention that company is making an investment of $100,000 in the making, marketing, and distribution of the 20,000 units of their new product. The management require a 50 percent return on this investment. Calculate the markup percentage on absorption costing given this information.

Question 4. If the company only sells 15,000 units at $21 per unit what would be the return on investment?

Question 5. Describe a limitation of the absorption costing approach to costing