(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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