Surent Corporation has the following information available on Product K: The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data, the company's total selling and administrative expenses associated with Product K each year are:
A)$80, 000
B)$200, 000
C)$920, 000
D)$800, 000

Question

Surent Corporation has the following information available on Product K:  The company uses the absorption costing approach to cost-plus pricing described in the text and a 50% markup.Based on these data, the company's total selling and administrative expenses associated with Product K each year are:
A)$80, 000 
B)$200, 000 
C)$920, 000 
D)$800, 000

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment)+ Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
0.50 = [(20% × $400, 000)+ Selling and administrative expenses] ÷ ($25 per unit × 80, 000 units)
0.50 = [($80, 000)+ Selling and administrative expenses] ÷ ($2, 000, 000)
($80, 000)+ Selling and administrative expenses = 0.50 × $2, 000, 000
$80, 000 + Selling and administrative expenses = $1, 000, 000
Selling and administrative expenses = $1, 000, 000 - $80, 000 = $920, 000

Surent Corporation Has the Following Information Available on Product K