Marvel Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product Y:
If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI),the required markup on absorption cost for product Y would be:
A) 12%
B) 15%
C) 26%
D) 38%

Question

Marvel Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product Y:
 If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI),the required markup on absorption cost for product Y would be:
A) 12% 
B) 15% 
C) 26% 
D) 38%

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(15% × $400,000) + $130,000] ÷ ($25 × 20,000)
= [($60,000) + $130,000] ÷ ($500,000)
= $190,000 ÷ $500,000 = 38%

Marvel Corporation Estimates That the Following Costs and Activity Would