Question

Sirhuds Inc., a maker of smart watches, reports the information below on its product. The company uses absorption costing and has a target markup 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 Cost......................................$8 per unit

Fixed Overhead Cost..........................................$600,000 per year

Variable selling and administrative expenses........$3 per unit

Fixed selling and administrative expenses...........$120,000 per year

Expected production (and sales).........................50,000 units per year

Answer 1

Answer:

Target Selling price per unit $217.56

Explanation:

Target selling price is baseed on the Target cost incurred plus target markup.

Total Cost per unit

Direct Materials Cost                                                 $100

Direct labor                                                                 $30

Variable Overhead Cost                                            $8

Varibale Selling & Administrative cost                      $3

Fixed Overhead Cost (600,000/50,000)                 $12

Fixed Selling and Administrative(120,000/50,000) $2.4

Total Per unit cost                                                      $155.4

Target Markup  = $155.4 x 40% = $62.16

Target Price = Total cost per unit + Target Markup per unit = $155.4 + $62.16 = $217.56