Gildersleeve Corporation manufactures a product that has the following costs:
Per unit Per year
Direct Materials $6.00
Direct Labour 5.00
Variable manufacturing overhead 4.00
Fixed manufacturing overhead $360,000
Variable SG&A expenses 5.00
Fixed SG&A expenses 120,000
The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 30,000 units per year.
The company has invested $600,000 in this product and expects a return on investment of 15%.
a) Compute the markup on absorption cost.
b) Compute the target selling price of the product using the absorption costing approach.