Kirgan,Inc.,manufactures a product with the following costs:
The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 57,000 units per year.
The company has invested $140,000 in this product and expects a return on investment of 13%.
The selling price based on the absorption costing approach would be closest to:
A) $77.42
B) $99.65
C) $77.10
D) $61.13

Question

Kirgan,Inc.,manufactures a product with the following costs:
 The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 57,000 units per year.
The company has invested $140,000 in this product and expects a return on investment of 13%.
The selling price based on the absorption costing approach would be closest to:
A) $77.42 
B) $99.65 
C) $77.10 
D) $61.13

Quizplus · Accepted Answer

11ea7761_1637_cccb_81a5_a73f45361f25_TB2580_00 Selling and administrative expenses = $4.50 per unit × 57,000 units + $723,900 = $980,400
Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(13% × $140,000) + $980,400] ÷ ($59.90 per unit × 57,000 units)
= [$18,200 + $980,400] ÷ $3,414,300
= [$998,600] ÷ $3,414,300 = 29.25%
Absorption cost based selling price = (1 + Markup percentage on absorption cost) × Unit product cost
= (1 + 0.2925) × $59.90 = $77.42

Kirgan,Inc.,manufactures a Product with the Following Costs