(Appendix 12A)Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit of product Y:

$\begin{array}{lccc}
\text { Number of Units Sold Annually } & 20,000 \
\text { Required Investment } & \$ 400,000 \
\text { Unit Product Cost } & \$ 25 \
\text { Selling, General, and Administrative } & \$ 130,000\
\text { Expenses }\
\end{array}$
If the company uses the absorption costing approach to cost-plus pricing and desires a 15% rate of return on investment (ROI),what would be the required markup on absorption cost for product Y?
A) 12%.
B) 15%.
C) 26%.
D) 38%.

Question

(Appendix 12A)Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit of product Y:

$\begin{array}{lccc}
\text { Number of Units Sold Annually } & 20,000 \
\text { Required Investment } & \$ 400,000 \
\text { Unit Product Cost } & \$ 25 \
\text { Selling, General, and Administrative } & \$ 130,000\
\text { Expenses }\
\end{array}$
 If the company uses the absorption costing approach to cost-plus pricing and desires a 15% rate of return on investment (ROI),what would be the required markup on absorption cost for product Y?
A) 12%.
B) 15%.
C) 26%.
D) 38%.

Quizplus · Accepted Answer

To calculate the required markup, first determine the total cost per unit, which includes the unit product cost and a portion of the selling, general, and administrative expenses. Then, calculate the desired profit by applying the 15% ROI on the $400,000 investment. Finally, divide the desired profit by the total cost to find the markup percentage.

(Appendix 12A)Marvel Company Estimates That the Following Costs and Activity