Fandry Company Has Obtained the Following Data Concerning a New

question 67

Multiple Choice

Fandry Company has obtained the following data concerning a new product:
$$\begin{array} { l l } \text { Production Costs, Using traditional costing method } & \$ 3.00 \text { per unit } \\\text { Production Costs, Using activity-based costing method } & \$ 5.00 \text { per unit } \\\text { Nonproduction Costs, Using activity-based costing method } & \$ 2.50 \text { per unit }\end{array}$$
Fandry Company wants the price of the new product to cover all costs plus a 100% markup.The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?

• A) $6.00
• B) $10.00
• C) $11.00
• D) $15.00

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Definitions:

Break-Even Analysis

A financial calculation that determines the point at which revenue received equals the costs associated with receiving the revenue, thereby resulting in neither a profit nor a loss.

Contribution Margin

Contribution margin is a financial metric that represents the difference between a company's sales revenue and variable costs, used to assess the profitability of individual products or services.

Profit Goal

A financial objective set by businesses that aims to achieve a specific amount of profit over a certain period of time.

Management By Objectives (MBO)

A strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees.