Quasi Company makes a product that has the following costs:

	Per Unit	Per Year
Direct materials	$17.40
Direct labor	$15.00
Variable manufacturing overhead	$2.30
Fixed manufacturing overhead		$855,00
Variable selling and administrative expenses	$4.00
Fixed selling and administrative expenses		$563,000

The company uses the absorption costing approach to cost-plus pricing as described in the text. The pricing calculations are based on budgeted production and sales of 38,000 units per year.

The company has invested $630,000 in this product and expects a return on investment of 8%.

Required:

a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2 decimal places. Omit the “%” sign in your responses.)

Markup on absorption cost ____________ %

b. Compute the selling price of the product using the absorption costing approach. (Round your intermediate and final answer to 2 decimal places. Omit the “$” sign in your responses.)

Target selling price $___________

c. Assume that every 20% increase in price leads to a 23% decrease in quantity sold. Assuming no change in cost structure and that direct labor is a variable cost compute the profit maximizing price (Round your intermediate and final answer to 2 decimal places. Omit the “$” sign in your responses.)

Profit maximizing price $ ___________

Answer rating: 100% (QA)

a Markup on absorption cost ... View the full answer