Problem - Rollie Company is launching a new cleaning product for ceramic vases. The company invests $1,200,000 in operating assets, such as production equipment,and plans to produce and sell 400,000 units per year. Rollie wants to make a return on investment of 20% each year. Rollie needs to know what price to charge for this product.
Use the absorption costing approach to determine the markup necessary to make the desired return on investment.
Per Unit Total
Direct Materials $2.00
Direct Labor $1.50
Variable Manufacturing Overhead $1.00
Fixed Manufacturing Overhead $200,000
Variable Selling and
Administrative Expense $0.10
Fixed Selling and Administrative Expense $50,000