Massano Motors expects to produce 10,000 motors during the upcoming year. It has budgeted for the following: net income of $200,000; variable costs of $500,000; and fixed costs of $300,000. The company has invested assets of $1,000,000 and a budgeted return on investment (ROI) of 20%. What is the budgeted markup percentage used in pricing each motor using a cost-plus method of pricing?
A) 15%
B) 20%
C) 25%
D) 30%

Question

Quizplus · Accepted Answer

ROI per unit = (ROI percentage x Invested Assets) ÷ Estimated Production Units = (20% x $1,000,000) ÷ 10,000 units = $20 per unit; Total Cost per Unit = (Total Variable Costs + Total Fixed Costs) ÷ Estimated Production Units = ($500,000 + $300,000) ÷ 10,000 units = $80; Markup Percentage = ROI per unit ÷ Total Unit Cost = $20 ÷ $80 = 25%

Massano Motors Expects to Produce 10,000 Motors During the Upcoming