The owners have invested $2,000,000 in the company and feel that they should be earning at
least 2% per month on these funds. If the absorption costing approach to pricing were used,
what would be the target selling price based on the current sales of 50,000 units? What do you
think would happen to the net operating income of the company if this price were charged?
To calculate the target selling price using the absorption costing approach, we need to consider the desired rate of return on the investment made by the owners. In this case, the owners want to earn at least a 2% return per month on their $2,000,000 investment.
To calculate the monthly return, we can multiply the investment amount by the desired return rate:
Monthly return = $2,000,000 * 2% = $40,000
Next, we need to determine the cost per unit using the absorption costing approach. Absorption costing includes all manufacturing costs, both variable and fixed, in the cost of a unit. We'll need to know the total manufacturing costs and the number of units produced to calculate the cost per unit.
Without that information, it's not possible to calculate the target selling price using the absorption costing approach or determine the impact on net operating income if the target price were charged.
Please provide the necessary data, such as total manufacturing costs and the number of units produced, so that I can help you further.