Exam 1: Pricing Products and Services

Joeston Corporation makes a product with the following costs: Per Unit Per Year Direct materials \ 14.70 Direct labor \ 14.10 Variable manufacturing overhead \ 3.70 Fixed manufacturing overhead. \3 05,200 Variable selling and administrative expenses \3 .00 Fixed selling and administrative expenses \1 63,800 The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 14,000 units per year. The company has invested $540,000 in this product and expects a return on investment of 10%. The markup on absorption cost would be closest to:

Timax Corporation, a manufacturer of moderate-priced time pieces, would like to introduce a new electronic watch. To compete effectively, the watch could not be priced at more than $50. The company requires a return on investment of 25% on all new products. The plan is to produce and sell 20,000 watches each year. This would require a $500,000 investment. The target cost per watch would be: