Question

A manufacturer reports the following information on its product. Compute the target selling price per unit under absorption costing.

Direct materials cost	\(50 per unit
Direct labor cost	\)12 per unit
Variable overhead cost	\(6 per unit
Fixed overhead cost	\)2 per unit
Target markup	40%

Short answer

Target selling price of the company is $98.

Step-by-step solution

Meaning of Selling Price

In business terms, selling price refers to the predetermined consideration price for a particular product or service. A manufacturer fixes the selling price of its products by adding profit to the actual cost incurred for such a product.

Computation of target selling price per unit

$\begin{array}{rcl}\mathbf{\text{Targetsellingprice}}& \mathbf{=}& \mathbf{\text{Absorptioncostperunit}}\mathbf{+}\mathbf{\text{Targetmarkup}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{70}\mathbf{+}\mathbf{+}\mathbf{\$}\mathbf{28}\\ & \mathbf{=}& \mathbf{\$}\mathbf{98}\end{array}$

Computation of cost per unit:

Particulars	Amounts ($)
Direct material cost	$50
Direct labor cost	12
Variable overhead cost	6
Fixed overhead cost	2
Absorption cost per unit	$70

Computation of target markup per unit:

$\begin{array}{rcl}\mathbf{\text{Targetmarkup}}& \mathbf{=}& \mathbf{\text{Absorptioncostperunit}}\mathbf{\times }\mathbf{\text{Percentageoftargetmarkup}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{70}\mathbf{\times }\frac{\mathbf{40}}{\mathbf{100}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{28}\end{array}$