Qualls Company Makes a Product That Has the Following Costs

question 96

Essay

Qualls Company makes a product that has the following costs:
$\begin{array}{|l|r|r|}\hline & \text { Per unit } & \text { Per year } \\\hline \text { Direct materials } & \$ 17.30 & \\\hline \text { Direct labour } & 12.90 & \\\hline \text { Variable manufacturing overhead } & 4.20 & \\\hline \text { Fixed manufacturing overhead } & & \$ 916,800 \\\hline \text { Variable SG\&A expenses } & 2.00 & \\\hline \text { Fixed SG\&A expenses } & & 907,200 \\\hline\end{array}$
The company uses the absorption costing approach to cost-plus pricing.The pricing calculations are based on budgeted production and sales of 48,000 units per year.
The company has invested $360,000 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:

Predetermined Manufacturing Overhead

An estimated overhead rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to products.

Machine-hours

A measure of production time, used in cost accounting, representing the hours that a machine operates.

Predetermined Overhead Rate

This refers to the rate used to allocate manufacturing overhead costs to individual products or job orders, calculated before the accounting period begins based on estimated costs and activity levels.

Machine-hour

A measure of the amount of time a machine is operated, used in calculating manufacturing costs and setting production schedules.