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Hello
I need help
It’s mock exam q
I don’t undrestand
can you please explain
A product has a materials cost of $10 per unit, a labour cost of $8 per unit, variable overhead of $3 , and fixed overheads of $5 per unit.
The company uses absorption costing and has a policy of pricing so as to make a gross profit margin of 20%
what should be the selling price per unit for the product?The total production cost is 10 + 8 + 3 + 4 = $25 per unit.
They want the profit to be 20% of the selling price. Therefore the cost must be 80% of the selling price.
Therefore the selling price must be $25/80% = $31.25.
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