Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 25% rate of return on investment (ROI), the required markup on absorption cost for Product A would be closest to:
A)12%
B)15%
C)17%
D)25%

Question

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A:  If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 25% rate of return on investment (ROI), the required markup on absorption cost for Product A would be closest to:
A)12% 
B)15% 
C)17% 
D)25%

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment)+ Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(25% × $400, 000)+ $300, 000] ÷ ($30 per unit × 80, 000 units)
= [($100, 000)+ $300, 000] ÷ $2, 400, 000
= $400, 000 ÷ $2, 400, 000 = 17% (rounded)

Minden Corporation Estimates That the Following Costs and Activity Would