Sample Company reported the following costs during 2008 for the manufacture and sale of 2000 units:
The average amount of capital invested in the product line during the year was $500 000 and the targeted return on investment was 20 per cent. If Sample's price per unit was $245 and the mark-up percentage was 53 per cent, what pricing formula was used by the company?

Question

Sample Company reported the following costs during 2008 for the manufacture and sale of 2000 units: 
The average amount of capital invested in the product line during the year was $500 000 and the targeted return on investment was 20 per cent. If Sample's price per unit was $245 and the mark-up percentage was 53 per cent, what pricing formula was used by the company?

Quizplus · Accepted Answer

Absorption cost-plus pricing includes all manufacturing costs, including fixed costs like overhead, in addition to variable costs. This type of pricing is commonly used to ensure that all costs are covered and a profit is earned, while also ensuring that the product is priced competitively. The targeted return on investment and average amount of capital invested also suggest that the company is using absorption costing.

Sample Company Reported the Following Costs During 2008 for the Manufacture