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:

Degree of Rivalry

The extent and intensity of competition among businesses within the same industry.

Substitute Products

Goods or services that can be used in place of each other, offering consumers alternatives in their purchasing choices.

Degree of Rivalry

The extent of competition between firms in the same industry, influencing market dynamics and profitability.

Threat of Substitute Products

The potential risk that consumers might replace a company's product with similar goods or services from another provider.