FAST Company has obtained the following data concerning a new product: Production Costs,Using traditional costing method……..………......$3.00
Production Costs,Using activity-based costing method…………......$5.00
Nonproduction Costs,Using activity-based costing method…….....$2.50
FAST Company wants the price of the new product to cover all costs plus a 100% markup.The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should FAST Company charge for the new product?
A)$6.00
B)$10.00
C)$11.00
D)$15.00

Question

FAST Company has obtained the following data concerning a new product:  Production Costs,Using traditional costing method……..………......$3.00
Production Costs,Using activity-based costing method…………......$5.00
Nonproduction Costs,Using activity-based costing method…….....$2.50
FAST Company wants the price of the new product to cover all costs plus a 100% markup.The production process used for the low volume product is very complicated and it has a higher proportion of indirect costs than direct costs.
What price per unit should FAST Company charge for the new product?
A)$6.00 
B)$10.00 
C)$11.00 
D)$15.00

Quizplus · Accepted Answer

The cost per unit using the traditional costing method is $3.00, while the cost per unit using activity-based costing method is $7.50 ($5.00 for production costs + $2.50 for nonproduction costs).

To cover all costs plus a 100% markup, the price per unit would be $6.00 using the traditional costing method and $15.00 using the activity-based costing method.

Since the production process used for the low volume product has a higher proportion of indirect costs than direct costs, it would be more accurate to use the activity-based costing method to determine the price. Thus, the best choice is D, $15.00.

FAST Company Has Obtained the Following Data Concerning a New