SLOW Company has determined the following information about a new product.The manufacturing process used for the product is very complex and it has a higher proportion of indirect costs than direct costs.The company wants a 100% markup on cost.The following data is available: Product cost according to traditional costing system………...$4.00 per unit
Product cost according to activity-based costing system……$7.00 per unit
What price per unit should SLOW Company use for this new product?
A)$4.00
B)$7.00
C)$8.00
D)$14.00

Question

Quizplus · Accepted Answer

Since the company wants a 100% markup on cost, we must add the markup to the product cost. 
For the traditional costing system, the markup would be: 
$4.00 x 100% = $4.00 
So the price per unit would be: $4.00 + $4.00 = $8.00

For the activity-based costing system, the markup would be: 
$7.00 x 100% = $7.00 
So the price per unit would be: $7.00 + $7.00 = $14.00

Since the company wants to earn the 100% markup on cost, the correct answer is option D, $14.00 per unit, which is the price per unit using the activity-based costing system.

SLOW Company Has Determined the Following Information About a New