Qualls Corporation Makes a Product That Has the Following Costs

question 21

Essay

Qualls Corporation makes a product that has the following costs: $\begin{array}{lrr}&\text { Per Unit } & \text { Per Year } \\\text {Direct materials }&\$ 17.30 & \\\text {Direct labor }&\$ 12.90 & \\\text {Variable manufacturing overhead }&\$ 4.20 \\\text { Fixed manufacturing overhead. }&&\$916,800\\\text { Variable selling and administrative expenses }&\$2.00\\\text { Fixed selling and administrative expenses }&&\$907,200\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text. 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 selling price of the product using the absorption costing approach.
c. Assume that every 10% increase in price leads to a 13% decrease in quantity sold. Assuming no change in cost structure and that direct labor is a variable cost, compute the profit-maximizing price.

---

Definitions:

Entitlement

A right to benefits specified especially by law or contract.

Unemployment Insurance

A government program that provides financial assistance to unemployed workers who meet certain eligibility requirements.

Policy Formulation

The process by which governments or organizations develop strategies and guidelines to address specific issues or achieve certain objectives.

Policymaking Process

The sequence of actions and decision-making steps through which a government or authority establishes policies to address public issues and regulate society.