Supreme-X manufactures furniture. The following cost information per unit is extracted:

Direct material costs: 10 sq. ft. at $30 per sq. ft.

Direct labor costs: 10 minutes at $120 per hour

Variable manufacturing overhead costs: $20 per unit

Fixed manufacturing overhead costs: $1,200,000

The annual production is 20,000 units. The pricing policy adopted is markup 30% based on production cost.

Required

i) What is the inventoriable cost per unit?

ii) What is the estimated selling price per unit? 

iii) In view of keen competition next year, the market price for similar furniture would be $380. What is the cost gap Supreme-X need to manage so as to maintain target profit as 20% of selling price?

Answer rating: 100% (QA)

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