Bourret Corporation Is Introducing a New Product Whose Direct Materials

question 10

Essay

Bourret Corporation is introducing a new product whose direct materials cost is $42 per unit, direct labor cost is $16 per unit, variable manufacturing overhead is $9 per unit, and variable selling and administrative expense is $3 per unit. The annual fixed manufacturing overhead associated with the product is $84,000 and its annual fixed selling and administrative expense is $16,000. Management plans to produce and sell 4,000 units of the new product annually. The new product would require an investment of $1,022,400 and has a required return on investment of 10%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the target selling price for the new product using the absorption costing approach.

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Definitions:

Trading Securities

Financial instruments bought and held primarily for selling in the near term to profit from price changes.

Unrealized Gain (Loss)

The increase (gain) or decrease (loss) in the value of investments that a company holds, which have not yet been sold for a profit or a loss.

Long-Term Investments

Assets intended to be held for more than one year, including stocks, bonds, real estate, and other securities.

Consolidated Financial Statements

Financial statements that aggregate the financial information of a parent company and its subsidiaries into one document, presenting the financial position and results of operations of the entire group as a single entity.