The Management of Archut Corporation Would Like to Set the Selling

question 20

Essay

The management of Archut Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product: $\begin{array}{lrr}&\text { Per Unit } & \text { Per Year } \\\text {Direct materials }&\$ 35 & \\\text {Direct labor }&\$ 14 & \\\text {Variable manufacturing overhead }&\$ 9\\\text { Fixed manufacturing overhead. }&&\$270,000\\\text { Variable selling and administrative expenses }&\$1\\\text { Fixed annual selling and administrative expenses }&&63,000\end{array}$ Management plans to produce and sell 9,000 units of the new product annually. The new product would require an investment of $3,002,400 and has a required return on investment of 10%.
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 selling price for the new product using the absorption costing approach.

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