Delsey Company manufactures product A which has a selling price of $48 per unit.Unit costs associated with the manufacture and sale of product A follow (based on 30,000 units manufactured and sold each year): The company uses the absorption costing approach to cost-plus pricing described in the text.The percentage markup being used to determine the selling price for product A is closest to:
A)100.0%
B)37.5%
C)60.0%
D)40.0%

Question

Delsey Company manufactures product A which has a selling price of $48 per unit.Unit costs associated with the manufacture and sale of product A follow (based on 30,000 units manufactured and sold each year):  The company uses the absorption costing approach to cost-plus pricing described in the text.The percentage markup being used to determine the selling price for product A is closest to:
A)100.0% 
B)37.5% 
C)60.0% 
D)40.0%

Quizplus · Accepted Answer

To calculate the percentage markup, we first need to calculate the total cost per unit of Product A using absorption costing:
Direct Materials: $10
Direct Labor: $7
Manufacturing Overhead: $6 ($1 + $2 + $3)

Total Product Cost: $23

Now we need to add the markup percentage to the total cost per unit to calculate the selling price per unit:
Selling Price = Total Product Cost / (1 - Markup Percentage)
$48 = $23 / (1 - Markup Percentage)

Solving for Markup Percentage:
Markup Percentage = (1 - $23/$48) x 100%
Markup Percentage = 60.0%

Therefore, the closest percentage markup being used to determine the selling price for Product A is 60.0%, which corresponds to answer choice C.

Delsey Company Manufactures Product a Which Has a Selling Price