Fandry Company has obtained the following data concerning a new product:
$$\begin{array} { l l }
\text { Production Costs, Using traditional costing method } & \$ 3.00 \text { per unit } \
\text { Production Costs, Using activity-based costing method } & \$ 5.00 \text { per unit } \
\text { Nonproduction Costs, Using activity-based costing method } & \$ 2.50 \text { per unit }
\end{array}$$
Fandry Company wants the price of the new product to cover all costs plus a 100% markup.The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
A) $6.00
B) $10.00
C) $11.00
D) $15.00

Question

Fandry Company has obtained the following data concerning a new product:
$$\begin{array} { l l } 
\text { Production Costs, Using traditional costing method } & \$ 3.00 \text { per unit } \
\text { Production Costs, Using activity-based costing method } & \$ 5.00 \text { per unit } \
\text { Nonproduction Costs, Using activity-based costing method } & \$ 2.50 \text { per unit }
\end{array}$$
Fandry Company wants the price of the new product to cover all costs plus a 100% markup.The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
A) $6.00
B) $10.00
C) $11.00
D) $15.00

Quizplus · Accepted Answer

The total cost per unit using the activity-based costing method is $5.00 (production costs) + $2.50 (nonproduction costs) = $7.50. With a 100% markup, the price should be $7.50 * 2 = $15.00.

Fandry Company Has Obtained the Following Data Concerning a New