A company uses absorption costing and has a target mark up of 40% of absorption

Question

A company uses absorption costing and has a target mark up of 40% of absorption cost per unit. Compute the target selling price per unit under absorption costing.

Direct materials cost..............100 per unit

Direct labor cost....................30 per unit

Variable overhead costs..........8 per unit

fixed overhead costs.............600,000 per year

variable selling and admin expenses......3 per unit

Fixed selling and admin expenses......120,000 per year

expected production and sales..............50,000 units per year

Explanation / Answer

Calculation of the Target Selling Price Direct Material 100 Direct Labour 30 Variable overhead cost 8 Variable selling 3 Total 141 Total 50000*141 7050000 Fixed Overheads 720000 600000+120000 Total cost 7770000 per unit 7770000/50000 155.4 Profit 155.4*40% 62.16 Target Selling Price per unit 217.56

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