Ritchie Corporation Manufactures a Product That Has the Following Costs

Essay

Ritchie Corporation manufactures a product that has the following costs: $\begin{array}{lrr}&\text { Per Unit } & \text { Per Year } \\\text {Direct materials }&\$20.70 & \\\text {Direct labor }&\$ 11.80 & \\\text {Variable manufacturing overhead }&\$ 3.20\\\text { Fixed manufacturing overhead. }&&\$817,700\\\text { Variable selling and administrative expenses }&\$4.10\\\text { Fixed selling and administrative expenses }&&\$961,900\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text. The pricing calculations are based on budgeted production and sales of 37,000 units per year. The company has invested $160,000 in this product and expects a return on investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.