Breaky Company is launching a new cleaning product for ceramic vases. The compan
ID: 2349161 • Letter: B
Question
Breaky Company is launching a new cleaning product for ceramic vases. The company invests $2,900,000 in operating assets, such as production equipment, and plans to produce and sell 150,000 units per year. Breaky wants to make a return on investment of 35% each year. Breaky needs to know what price to charge for this product.
Use the absorption costing approach to determine the markup necessary to make the desired return on investment. Round your answer to two decimals places. Cost information is provided below:
Per Unit Total
Direct Materials $15.00
Direct Labor $9.50
Variable Manufacturing Overhead $3.00
Fixed Manufacturing Overhead $300,000
Variable Selling and Admin. Expense $0.70
Fixed Selling and Admin. Expense $80,000
Selling price= $
Explanation / Answer
Expected profit: $2900000 x 35% = $1015000. Direct Materials ($15.00 x 150000).................................… $2250000 (+) Direct Labor ($9.50 x 150000).................................… $1425000 ............................... Prime cost....................................… $3675000 (+) Manufacturing Overhead : Variable Manufacturing Overhead ($3.00 x 150000)................... $450000 Fixed Manufacturing Overhead ($300,000 total)......................... $300000 ................................Net Factory Cost................................... $4425000 (+)Selling and Administration Expense: Variable Selling and Administration Expense ($0.70 x 150000)... $105000 Fixed Selling and Administration Expense ($80000 total)........... $80000 ............................... Cost of Production..............................… $4610000 (+) Beginning Inventory of finished goods.................................. $NIL (-)I Ending Inventory of finished goods...................................… $(NIL) ................................Cost Of Goods Sold............................... $4610000 (+) Profit..................................… $1015000 ................................. SALES...................................… $5625000 Therefore: Selling price of the product per unit = $ 5625000 / 150000 = $ 37.50 Per unit