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ch12-AFM102s2012

# Direct materials direct labour variable manufacturing

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Unformatted text preview: ccounting \$ \$ 20 10 30 Absorption Costing Approach: Determining the Markup Percentage 12-49 Let’s assume that Ritter must invest \$100,000 in the product Let’s assume that Ritter must invest \$100,000 in the product and market 10,000 units of product each year. The company and market 10,000 units of product each year. The company requires a 20% ROI on all investments. Let’s determine requires a 20% ROI on all investments. Let’s determine Ritter’s markup percentage on absorption cost. Ritter’s markup percentage on absorption cost. Markup % on absorption cost = (Required ROI × Investment) + SG&A expenses Unit sales × Unit product cost Markup % (20% × \$100,000) + (\$2 × 10,000 + \$60,000) on absorption = 10,000 × \$20 cost Variable SG&A per unit Total fixed SG&A Markup % on absorption cost Managerial Accounting = (\$20,000 + \$80,000) \$200,000 = 50% 12-50 Reasons for Using Target Costing Target cost = Anticipated selling price – Desired profit Two characteristics of prices and product costs: 1. The market (i.e., supply and demand) determines price. 2. Most of the cost of a product is determined in the design stage. Target costing was developed in recognition of Target costing...
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