(Appendix 12A)Kircher,Inc The Company Uses the Absorption Costing Approach to Cost-Plus Pricing

question 93

Multiple Choice

(Appendix 12A) Kircher,Inc.manufactures a product with the following costs:

$\begin{array}{lcr}&\text { Per unit }&\text { Per year }\\\text { Direct materials } & \$ 24.90 \\\text { Direct labour } & 13.90 \\\text { Variable manufacturing overhead } & 2.10 \\\text { Fixed manufacturing overhead } &&\$ 1,182,600 \\\text { Variable SG\&A expenses } & 2.00 \\\text { Fixed SG\&A expenses } &&1,166,400\end{array}$

The company uses the absorption costing approach to cost-plus pricing.The pricing calculations are based on budgeted production and sales of 81,000 units per year.The company has invested $220,000 in this product and expects a return on investment of 15%.The target selling price based on the absorption costing approach would be closest to which of the following?

• A) $53.29.
• B) $71.90.
• C) $72.31.
• D) $93.67.

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Definitions:

Increase Liabilities

The process or action that results in a higher amount of obligations or debts owed by an entity to others.

Decrease Net Income

Refers to a reduction in the net earnings as reported on an entity's income statement, influenced by costs, expenses, or losses.

Accrual

The accounting method that recognizes revenues and expenses when they are incurred, regardless of when cash transactions occur.

Wages Expense

The total cost incurred by a company for the salaries or wages of its employees.