Magner,Inc.uses the absorption costing approach to cost-plus pricing to set prices for its products.Based on budgeted sales of 34,000 units next year,the unit product cost of a particular product is $61.80.The company's selling,general,and administrative expenses for this product are budgeted to be $809,200 in total for the year.The company has invested $400,000 in this product and expects a return on investment of 9%.The target selling price for this product based on the absorption costing approach would be closest to which of the following?
A) $67.36.
B) $85.60.
C) $86.66.
D) $120.03.

Question

Quizplus · Accepted Answer

To calculate the target selling price using the absorption costing approach, we first determine the total cost per unit, including the desired ROI. The unit product cost is $61.80, and the total SG&A expenses are $809,200. Dividing the total SG&A expenses by the budgeted sales gives us the SG&A expense per unit: $809,200 / 34,000 units = $23.80 per unit. The desired ROI is 9% of the $400,000 investment, which equals $36,000. Dividing this by the number of units gives us the ROI per unit: $36,000 / 34,000 units = $1.06 per unit. Adding these together gives us the total cost per unit: $61.80 (product cost) + $23.80 (SG&A per unit) + $1.06 (ROI per unit) = $86.66.