Question #1 (15 points) Gilder Corporation manufactures a product that has the f
ID: 2503521 • Letter: Q
Question
Question #1 (15 points)
Gilder 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`s markup must be enough to cover the projected SG&A for the year and profit of $90,000.
Required:
(a.) Compute the absorption cost of the product.
(b.) Compute the required markup percentage.
(c.) Compute the target selling price of the product.
Explanation / Answer
a) STATEMENT SHOWING ABSORPTION COST OF THE PRODUCT:-
DIRECT MATERIALS (30000*6) = 180000
ADD:- DIRECT LABOR = (30000*5) = 150000
ADD:-VARIABLE MANUFACTURING OVERHEAD (4*30000) = 120000
ADD:-FIXED MANUFACTURING OVERHEAD = 360000
COST OF PRODUCTION/COST OF GOODS SOLD = 810000
ADD:-VARIABLE SG&A EXPENSES (5*30000) = 150000
ADD:-FIXED SG&A EXPENSES = 120000
COST OF SALES = 1080000
TOTAL ABSORPTION COST OF THE PRODUCT(i.e 30000 UNITS) = $1080000
ABSORPTION COST PER UNIT = 810000/30000
=$27 PER UNIT
b) IF MARKUP IS TO BE DONE ON COST OF GOODS SOLD ,THE REQUIRED MARKUP PERCENTAGE = 90000/810000 * 100
= 11.11%
IF MARKUP IS TO DONE ON COST OF SALES, THEN THE REQUIRED MARKUP PERCENTAGE = 90000/1080000 * 100
= 8.33%
c)TARGET SELLING PRICE OF THE PRODUCT = TOTAL SALES/NO. OF UNITS
= (1080000*1.0833)/30000
=1169964/30000
=$40 PER UNIT.