Joeston Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 14, 000 units per year.The company has invested $540, 000 in this product and expects a return on investment of 10%.The markup on absorption cost would be closest to:
A)27.1%
B)124.2%
C)34.2%
D)10.0%

Question

Joeston Corporation makes a product with the following costs:  The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 14, 000 units per year.The company has invested $540, 000 in this product and expects a return on investment of 10%.The markup on absorption cost would be closest to:
A)27.1% 
B)124.2% 
C)34.2% 
D)10.0%

Quizplus · Accepted Answer

Selling and administrative expenses = ($3.00 per unit × 14, 000 units)+ $163, 800 = $205, 800
 11eaa0c8_9668_42ae_9cb2_458eb6d89148_TB2487_00 Markup percentage on absorption cost = [(Required ROI × Investment)+ Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(10% × $540, 000)+ $205, 800] ÷ ($54.30 per unit × 14, 000 units)
= [$54, 000 + $205, 800] ÷ $760, 200
= $259, 800 ÷ $760, 200 = 34.2% (rounded)

Joeston Corporation Makes a Product with the Following Costs