Question

Nolan Limited is considering introducing a new product. Management has gathered the fol- lowing information:
Number of units to be produced and sold each year . . . . . . . . . . . . . . . . . . . . 10,000
Unit product cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16
Projected annual selling and administrative expenses . . . . . . . . . . . . . . . . . . . $ 40,000
Estimated investment required by the company. . . . . . . . . . . . . . . . . . . . . . . . $400,000
Desired return on investment (ROI). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
Required:
1. Using the absorption costing approach to cost-plus pricing, compute the markup the company will have to use to achieve the desired ROI.
2. Assume that the $16 unit product cost includes $3 per unit for fixed manufacturing overhead based on producing and selling 10,000 units each year. Also assume that $26,000 of the total selling and administrative expenses of $40,000 is fixed. The remainder is variable. Use the total variable costing approach to calculate the markup the company will have to use to achieve the desired ROI.
3. Compute the target selling price per unit under each pricing approach from (1) and (2) above.


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  • CreatedJuly 08, 2015
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