Ritchie Corporation Manufactures a Product That Has the Following Costs

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\begin{array}{lrr}& ext { Per Unit}& ext { Per Year }\ ext { Direct materials........................................ } & \$ 20.70 & \ ext { Direct labor ............................................ } & \$ 11.80 & \ ext { Variable manufacturing overhead .................... } & \$ 3.20 & \ ext { Fixed manufacturing overhead....................... } & & \$ 817,700 \ ext { Variable selling and administrative expenses....... } & \$ 4.10 & \ ext { Fixed selling and administrative expenses .......... }&&\$691,900\end{array}

a.
Markup percentage on absorption cost = [(Required ROI × Investment)+ Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(15% × $160,000)+ ($4.10 × 37,000 + $691,900)] ÷ (37,000 × $57.80)
= [($24,000)+ ($843,600)] ÷ $2,138,600 = 40.57%
b.Absorption cost based selling price = (1 + Markup percentage on absorption cost)× Unit product cost
= (1 + 0.4057)× $57.80 = $81.25

\begin{array}{llcc} ext {Direct materials.................................. } & \$20.70 \ ext {Direct labor......................................... } &11.80\ ext { Variable manufacturing overhead....... } &3.20\ ext { Fixed manufacturing overhead........... } &22.10\ ext { Unit product cost...............................} &\$57.80\\end{array}

Ritchie Corporation Manufactures a Product That Has the Following Costs

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Ritchie Corporation Manufactures a Product That Has the Following Costs

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