Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit 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 Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit 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 F1F1F1S1F1F1F10 Investment)+ Selling and administrative expenses] F1F1F1S1F1F1F10 (Unit product cost F1F1F1S1F1F1F10 Unit sales)
= [(15% F1F1F1S1F1F1F10 $400,000)+ $130,000] F1F1F1S1F1F1F10 ($25 per unit F1F1F1S1F1F1F10 20,000 units)
= $190,000 F1F1F1S1F1F1F10 $500,000 = 38%

Marvel Company Estimates That the Following Costs and Activity Would