Relevant cost

Problem A-4 (30 minutes)

1. a. Number of jackets manufactured each year:

21,000 labor-hours ÷ 1.4 labor-hours per jacket = 15,000 jackets.

Selling and administrative expenses:

Variable (15,000 jackets × $4 per jacket)....... $ 60,000

Fixed ........................................................... 474,000

Total ............................................................ $534,000

()

()

Required ROI Selling and administrative +

Markup percentage × Investment expenses

= on absorption cost Unit product cost × Unit sales

24% × $900,000 + $534,000

$40 per jacket × 15,000 jackets

$750,000

$600,000

= 125%

b. Direct materials............................................... $ 9.20

Direct labor..................................................... 14.00

Manufacturing overhead .................................. 16.80

Unit product cost............................................. 40.00

Add markup: 125% of unit product cost ........... 50.00

Target selling price .......................................... $90.00