Dickson Company Makes a Product with the Following Costs The Company Uses the Absorption Costing Approach to Cost-Plus Pricing

question 112

Multiple Choice

Dickson Company makes a product with the following costs:
$\begin{array}{l|r|r|}\hline & \text { Per unit } & \text { Per year } \\\hline \text { Direct materials } & \$ 180.20 & \\\hline \text { Direct labour } & 22.30 & \\\hline \text { Variable Manufacturing overhead } & 2.90 & \\\hline \text { Fixed manufacturing overhead } & & \$ 1,296,000 \\\hline \text { Variable SG\&A expenses } & 1.10 & \\\hline \text { Fixed SG\&A expenses } & & \$ 1,104,000 \\\hline\end{array}$
The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 60,000 units per year.
The company has invested $\$ 320,000$ in this product and expects a return on investment of $15 \%$ .
Direct labour is a variable cost in this company.
- The target selling price based on the absorption costing approach is closest to which of the following?

• A) $56.95.
• B) $84.50.
• C) $85.30.
• D) $110.89.

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Definitions:

Direct Manufacturing Cost

The sum of all costs directly involved in the production of a product, including direct labor and materials, but excluding indirect expenses.

Produced Units

The total quantity of completed goods produced by a company over a given time frame.

Indirect Manufacturing Cost

Expenses related to production that are not directly tied to a specific product, such as maintenance and utilities.

Produced Units

The total number of units manufactured within a specific period.