Bohmker Corporation Is Introducing a New Product Whose Direct Materials

question 120

Essay

Bohmker Corporation is introducing a new product whose direct materials cost is $25 per unit, direct labor cost is $13 per unit, variable manufacturing overhead is $9 per unit, and variable selling and administrative expense is $4 per unit. The annual fixed manufacturing overhead associated with the product is $18,000 and its annual fixed selling and administrative expense is $9,000. Management plans to produce and sell 1,000 units of the new product annually. The new product would require an investment of $110,500 and has a required return on investment of 10%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.Required:a. Determine the unit product cost for the new product.b. Determine the markup percentage on absorption cost for the new product.c. Determine the selling price for the new product using the absorption costing approach.

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Definitions:

Moving Expense

Costs incurred for relocating one’s residence or business, which may be deductible under certain tax circumstances when related to a new job location.

Household Goods

Items and possessions within a living space that are used in everyday life, such as furniture, appliances, and home textiles.

Pre-Move

Activities or expenses that occur before relocation, potentially relevant for tax deductions related to moving.

Health Savings Account

A tax-advantaged savings account available to taxpayers enrolled in high-deductible health plans, used to pay for eligible medical expenses.