Simmons Corporation estimated that the following costs and activity would be associated with Product T: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:
A)$37.25
B)$38.75
C)$42.00
D)$44.75

Question

Simmons Corporation estimated that the following costs and activity would be associated with Product T:  If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 20% ROI, the selling price for Product T would be:
A)$37.25 
B)$38.75 
C)$42.00 
D)$44.75

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment)+ Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(20% × $900, 000)+ $600, 000] ÷ ($35 per unit × 80, 000 units)
= [$180, 000 + $600, 000] ÷ ($2, 800, 000)
= 0.2786
Absorption cost based selling price = (1 + Markup percentage on absorption cost)× Unit product cost
= (1 + 0.2786)× $35 per unit = 1.2786 × $35 per unit = $44.75 per unit

Simmons Corporation Estimated That the Following Costs and Activity Would