Question

Honey Bell Corporation has the following information about its Eclipse Product: Honey Bell Corporation Eclipse Product Expected Sales 10,000 units Direct material and labor costs $ 150 per unit Variable manufacturing overhead $ 20 per unit Fixed manufacturing overhead $ 300,000 Fixed selling and administrative expenses $ 150,000 Average operating assets $ 2,000,000 Required return on investment 20 % What is the amount of the markup percentage on the absorption cost that should be used to derive the selling price of this product

Answer 1

Answer:

Mark- up  = 23.3%

Explanation:

Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e.g machine hours, labour hours e.t.c. Units are valued using full cost per unit  

Full cost per unit= Direct material cost + direct labor cost + Variable production overhead + Fixed production overhead

Fixed production overhead = Budgeted overhead/Budgeted production units

 Fixed production overhead = $300,000/150,000 units=2

Total cost = 150 + 20 + 2= $172

Total cost per unit using absorption costing = $172

Desired ROI = 20%. × 2,000,000= $400,000

Profit per unit = 400,000/10,000 units =40

Mark- up = Profit/Cost = 40/172× 100 = 23.3%

Mark- up  = 23.3%