Question

Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of product Y: Number of units sold annually 23,000 Required investment $430,000 Unit product cost $22 Selling and administrative expenses $109,060 If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 17% rate of return on investment (ROI), the required markup on absorption cost for product Y would be closest to:

Answer 1

Answer:

36%

Explanation:

The required markup on absorption cost shall be calculated using the following formula:

Markup on absorption cost=[( ROI*amount Invested) + total selling and admin expenditure]/(product cost per unit* number of units sold)

In the given question:

ROI=17%

Amount Invested=$430,000

Total selling and admin expenditure=$109,060

Product cost per unit=Unit product cost $22

Number of units sold=23,000

Markup on absorption cost=[( 17%*430,000) + 109,060]/(22* 23,000)

                                             = 36%