Question

Huds Incorporated reports the following information on its product. The company uses absorption costing and has a target markup of 40

Answer 1

The company should set its selling price at $120 to achieve a 40% markup.

Explanation:

Absorption costing is a method of costing where all the costs, such as direct material, direct labor, variable overhead and fixed overhead are included in the cost of the product. A target markup of 40% is the desired profit margin for a company. To calculate the selling price to achieve a 40% markup, the formula used is Selling Price = Cost/(1-Markup).

In this case, since the cost is not provided, the cost is assumed to be 100. The selling price is calculated as follows: Selling Price = Cost/(1-Markup) = 100/(1-0.4) = 100/0.6 = $120. Therefore, the company should set its selling price at $120 to achieve a 40% markup.

Answer 2

The question is about absorption costing and how to calculate the selling price of a product with a target markup of 40%. To determine the selling price, the full production cost is increased by 40%.

Step-by-step explanation:

The question pertains to absorption costing, which is an accounting method that includes all the costs associated with the production of goods when calculating their value.

In this scenario, Huds Incorporated uses absorption costing and aims for a markup of 40% on its products. Markup is the amount added to the cost of a product to cover overhead and profit, usually expressed as a percentage.

To calculate the selling price using the target markup, you would first need to know the full cost of the product under absorption costing, which includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Once you have the total cost, you increase it by 40% to find the selling price.