(Appendix 12A)Riley Company Makes a Product That Has the Following

question 39

Essay

(Appendix 12A)Riley Company makes a product that has the following costs:

$\begin{array}{lrr}& \underline{\text { Per unit }} & \text { Per year } \\\text { Direct materials } &\$27.00\\\text { Direct labour } & 22.00 & \\\text { Variable manufacturing overhead } & 14.00 & \\\text { Fixed manufacturing overhead } && \$ 1,080,000 \\\text { Variable SG\&A expenses } & 12.00\\\text { Fixed SG\&A expenses } & & 960,000\end{array}$

The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 48,000 units per year.

The company has invested $500,000 in this product and expects a return on investment of 15%.

Required:

a) Compute the markup on absorption cost.
b) Compute the target selling price of the product using the absorption costing approach.

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Definitions:

Conflict

A situation where two or more parties disagree due to opposing needs, desires, beliefs, or values, which can occur between individuals, groups, or organizations.

Ambiguity

The quality of being open to more than one interpretation, explanation, or meaning, often leading to confusion or misunderstanding.

Network Structures

Organizational designs that focus on decentralized connections between individuals or units, allowing for flexible coordination and exchange of information.

Mechanistic Organizational Structure

An organization design that is hierarchical and bureaucratic, characterized by clear, rigid departmentalization, centralized decision making, and a strict chain of command.