Aldean Company wants to use absorption cost-plus pricing to set the selling price on a new product. The company plans to invest $180,000 in operating assets to produce and sell 18,000 units. Its required return on investment (ROI) in its operating assets is 18%. The accounting department has provided cost estimates for the new product as shown below:

Aldean Company wants to use absorption cost-plus pricing to set the selling price on a new product. The company plans to invest $180,000 in operating assets to produce and sell 18,000 units. Its required return on investment (ROI) in its operating assets is 18%. The accounting department has provided cost estimates for the new product as shown below:

	Per Unit			Total
Direct materials	$	7.90
Direct labor	$	5.90
Variable manufacturing overhead	$	2.90
Fixed manufacturing overhead				$	138,600
Variable selling and administrative expenses	$	1.90
Fixed selling and administrative expenses				$	43,200

Required:

1. What is the unit product cost for the new product? (Round intermediate calculations and final answer to 2 decimal places.)

2. What is the markup percentage on absorption cost for the new product? (Round intermediate calculations to 2 decimal places.)

3. What selling price would the company establish for its new product using a markup percentage on absorption cost? (Round intermediate calculations and final answer to 2 decimal places.)

Explanation

1.

The unit product cost is computed as follows:

Direct materials	$	7.90
Direct labor		5.90
Variable manufacturing overhead		2.90
Fixed manufacturing overhead ($138,600 ÷ 18,000 units)		7.70
Unit product cost	$	24.40

2.

The markup percentage is computed as follows:

Markup percentage on absorption cost	=	(Required ROI × Investment) + Selling and administrative expenses
		Unit sales × Unit product cost
	=	(18% × $180,000) + [($1.90 × 18,000 units) + $43,200]
		18,000 units × $24.40 per unit
	=	$109,800
		$439,200
	=	25%

3.

The selling price is computed as follows:

Unit product cost	$	24.40
Markup (25% × $24.40)		6.10
Selling price per unit (rounded)	$	30.50

Thanks