You are advising the management at the company ABC regarding their pricing decisions in relation to a new product. Existing information is as follows: Direct materials $4 per unit; direct labor $3 per...

You are advising the management at the company ABC regarding their pricing decisions in relation to a new product.  Existing information is as follows:

Direct materials $4 per unit; direct labor $3 per unit; variable manufacturing overhead $5 per unit; variable selling and administrative expenses $2 per unit; fixed manufacturing overhead expenses $$40,000; and fixed selling and administrative expenses $70,000.

There is an expectation that company will sell 20,000 units.

1. Determine the unit product cost if company uses an absorption costing approach in its cost-plus pricing.


2. Determine the target selling price given that company uses a 40 percent markup percentage.


3. It has been brought to your attention that company is making an investment of $100,000 in the making, marketing, and distribution of the 20,000 units of their new product.  The management require a 50 percent return on this investment.  Calculate the markup percentage on absorption costing given this information.


4. If the company only sells 15,000 units at $21 per unit what would be the return on investment?


5. Describe a limitation of the absorption costing approach to costing.