Sirhuds Inc., a maker of smart watches, reports the information below on its product. The company uses absorption costing and has a target markup of 40% of absorption cost per unit. Compute the target selling price per unit under absorption costing.

Direct Materials Cost$100 per unit

Direct Labor Cost$30 per unit

Variable Overhead Cost$8 per unit

Fixed Overhead Cost$600,000 per year

Variable selling and administrative expenses$3 per unit

Fixed selling and administrative expenses$120,000 per year

Expected production (and sales)50,000 units per year

Target Selling price per unit $217.56

Explanation:

Target selling price is baseed on the Target cost incurred plus target markup.

Total Cost per unit

Direct Materials Cost                                                 $100

Direct labor                                                                 $30

Variable Overhead Cost                                            $8

Varibale Selling & Administrative cost                      $3

Fixed Overhead Cost (600,000/50,000)                 $12

Fixed Selling and Administrative(120,000/50,000) $2.4

Total Per unit cost                                                      $155.4

Target Markup  = $155.4 x 40% = $62.16

Target Price = Total cost per unit + Target Markup per unit = $155.4 + $62.16 = $217.56