Riley Company Makes a Product That Has the Following Costs

question 83

Essay

Riley Company makes a product that has the following costs:
$\begin{array}{|l|r|r|}\hline & \text { Per unit } & \text { Per year } \\\hline \text { Direct materials } & \$ 27.00 & \\\hline \text { Direct labour } & 22.00 & \\\hline \text { Variable manufacturing overhead } & 14.00 & \\\hline \text { Fixed manufacturing overhead } & & \$ 1,080,000 \\\hline \text { Variable SG\&A expenses } & 12.00 & \\\hline \text { Fixed SG\&A expenses } & & 960,000 \\\hline\end{array}$
The company uses the absorption costing approach to cost-plus pricing.The pricing calculations are based on budgeted production and sales of 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:

Buyer's Expense

Costs that are borne by the purchaser of goods or services, including but not limited to, shipping, taxes, and any other charges associated with the purchase.

Alongside the Ship

A term used in shipping to describe a situation where goods are positioned next to a vessel, ready to be loaded or having been unloaded, essentially indicating they are at the place of transfer.

Simple Delivery Contract

Type of contract in which purchased goods are transferred to the buyer from the seller either at the time of the sale or at some time later by the seller’s delivery.

Merchant

An individual or business that sells goods or services in a commercial setting.