Slocum 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:
$\begin{array} { l }
\text {Product cost according to traditional costing system }&\$ 4.00 \text { per unit}\
\text {Product cost according to activity-based costing system }&\$ 7.00 \text { per unit}\
\end{array}$

What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00

Question

Slocum 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:
$\begin{array} { l  }
 \text {Product cost according to traditional costing system }&\$ 4.00 \text { per unit}\
 \text {Product cost according to activity-based costing system }&\$ 7.00 \text { per unit}\
\end{array}$

What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00

Quizplus · Accepted Answer

Given the product's complexity and higher proportion of indirect costs, the activity-based costing (ABC) system provides a more accurate cost measurement at $7.00 per unit. With a desired 100% markup on cost, the price per unit should be $7.00 * 2 = $14.00.

Slocum Company Has Determined the Following Information About a New