Sirhuds Inc., a maker of smart watches, reports the information below on its pro
ID: 2453591 • Letter: S
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
Explanation / Answer
Solution;
(A). Selling Price Per Unit Using Absorption costing:
Direct Mterial Cost 100
Direct Labour Cost 30
Variable Cost Per Unit 8
Variable selling and administrative 3
Fixed Overhead Cost (6,00,000 / 50,000) 12
Fixed selling and administrative 2.4
Total Unit Product Cost = 155.4
(B).
Target Markup 40% :
= 155.4 * 40 / 100
= 62.16