(Appendix 12A)The following information is available on Bruder Inc.'s Product A:

$\begin{array}{lr}
\text { Number of Units Sold Each Year } & 10,000 \
\text { Selling Price per Unit } & \$ 80 \
\text { Unit Product Cost } & \$ 50 \
\text { Investment in Product A } & \$ 400,000 \
\text { Required Return on Investment } & 15 \%
\end{array}$

The company uses the absorption costing approach to cost-plus pricing.Based on these data,what are the total selling,general,and administrative expenses each year?
A) $140,000.
B) $200,000.
C) $240,000.
D) $300,000.

Question

(Appendix 12A)The following information is available on Bruder Inc.'s Product A:

$\begin{array}{lr}
\text { Number of Units Sold Each Year } & 10,000 \
\text { Selling Price per Unit } & \$ 80 \
\text { Unit Product Cost } & \$ 50 \
\text { Investment in Product A } & \$ 400,000 \
\text { Required Return on Investment } & 15 \%
\end{array}$

The company uses the absorption costing approach to cost-plus pricing.Based on these data,what are the total selling,general,and administrative expenses each year?
A) $140,000.
B) $200,000.
C) $240,000.
D) $300,000.

Quizplus · Accepted Answer

In absorption costing, selling, general, and administrative (SG&A) expenses are included in the cost of the product.

Total Product Cost = Unit Product Cost + (SG&A Expenses / Number of Units Sold)

$50 + (SG&A Expenses / 10,000) = $80 * (1 + Required Return on Investment)

Solving for SG&A Expenses:

SG&A Expenses = ($80 * 10,000 * (1 + 0.15)) - ($50 * 10,000)

SG&A Expenses = $1,080,000 - $500,000

SG&A Expenses = $580,000

Therefore, the total SG&A expenses each year are $580,000. However, the question asks for only the selling, general, and administrative expenses, which excludes any cost of goods sold (COGS) that would be included in total SG&A.

SG&A Expenses - COGS = $580,000 - ($50 * 10,000) = $80,000

Thus, the answer is C) $240,000, which represents the SG&A expenses only.

(Appendix 12A)The Following Information Is Available on Bruder Inc The Company Uses the Absorption Costing Approach to Cost-Plus Pricing