Edelheit Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 26,000 units next year, the unit product cost of a particular product is $24.20. The company's selling and administrative expenses for this product are budgeted to be $629,000 in total for the year. The company has invested $340,000 in this product and expects a return on investment of 14%.
-The selling price based on the absorption costing approach for this product would be closest to:
A)$27.59
B)$50.22
C)$48.40
D)$100.46

Question

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI F1F1F1S1F1F1F10 Investment)+ Selling and administrative expenses] F1F1F1S1F1F1F10 (Unit product cost F1F1F1S1F1F1F10 Unit sales)
= [(14% F1F1F1S1F1F1F10 $340,000)+ $629,000] F1F1F1S1F1F1F10 ($24.20 F1F1F1S1F1F1F10 26,000 units)
= [($47,600)+ $629,000] F1F1F1S1F1F1F10 ($629,200)
= [($47,600)+ $629,000] F1F1F1S1F1F1F10 $629,200
= [$676,600] F1F1F1S1F1F1F10 $629,200 = 107.5%
Absorption cost based selling price = (1 + Markup percentage on absorption cost)F1F1F1S1F1F1F10 Unit product cost
= (1 + 1.075)F1F1F1S1F1F1F10 $24.20 = $50.22

Edelheit Company Uses the Absorption Costing Approach to Cost-Plus Pricing