Trepan Corporation is contemplating the introduction of a new product. The company has gathered the following information concerning the product: $\begin{array}{lr}
\text {Number of units to be produced and sold each year }&25,000 \
\text {Investment required by the company }&\$ 300,000 \
\text {Projected unit manufacturing cost. }&\$ 30 \
\text {Projected annual selling and administrative expenses. }&\$ 90,000 \
\text { Desired rate of return on investment.}&20 \%
\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Question

Trepan Corporation is contemplating the introduction of a new product. The company has gathered the following information concerning the product: $\begin{array}{lr}
\text {Number of units to be produced and sold each year  }&25,000 \
\text {Investment required by the company }&\$ 300,000 \
\text {Projected unit manufacturing cost. }&\$ 30 \
\text {Projected annual selling and administrative expenses. }&\$ 90,000 \
\text { Desired rate of return on investment.}&20 \%
\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Quizplus · Accepted Answer

The Answer of Trepan Corporation is contemplating the introduction of a new product. The company has gathered the following information concerning the product: $\begin{array}{lr}
\text {Number of units to be produced and sold each year  }&25,000 \
\text {Investment required by the company }&\$ 300,000 \
\text {Projected unit manufacturing cost. }&\$ 30 \
\text {Projected annual selling and administrative expenses. }&\$ 90,000 \
\text { Desired rate of return on investment.}&20 \%
\end{array}$ The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in "b" above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain.

Trepan Corporation Is Contemplating the Introduction of a New Product