The management of Store Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product: Management plans to produce and sell 6,000 units of the new product annually. The new product would require an investment of $1,140,000 and has a required return on investment of 10%.
-The absorption costing unit product cost is:
A)$57
B)$64
C)$77
D)$53

Question

The management of Store Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product:  Management plans to produce and sell 6,000 units of the new product annually. The new product would require an investment of $1,140,000 and has a required return on investment of 10%.
-The absorption costing unit product cost is:
A)$57 
B)$64 
C)$77 
D)$53

Quizplus · Accepted Answer

The absorption costing unit product cost is calculated as: Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead/Number of Units Produced.
Using the above formula, we get: $18 + $21 + ($10/6) + ($30,000/6,000) = $18 + $21 + $1.67 + $5 = $64.67. Rounded to the nearest dollar, the absorption costing unit product cost is $64, thus the best choice is B.

The Management of Store Corporation Would Like to Set the Selling