Gildersleeve Corporation Manufactures a Product That Has the Following Costs

Essay

Gildersleeve Corporation manufactures a product that has the following costs:

$\begin{array}{lrr} & \text { Per unit }& \text { Per year } \\\text { Direct materials }&\$6.00\\\text { Direct labour } & 5.00& \\\text { Variable manufacturing overhead } & 4.00 & \\\text { Fixed manufacturing overhead } & & \$ 360,000 \\\text { Variable SG\&A expenses } & 5.00 & \\\text { Fixed SG\&A expenses } & & 120,000\end{array}$

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%.

Required:

a) Compute the markup on absorption cost.
b) Compute the target selling price of the product using the absorption costing approach.