Jabal Corporation makes 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 28,000 units per year. The company has invested $560,000 in this product and expects a return on investment of 10%.
The markup on absorption cost would be closest to:
A)46.0%
B)10.0%
C)141.1%
D)49.7%

Question

Jabal Corporation makes 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 28,000 units per year. The company has invested $560,000 in this product and expects a return on investment of 10%.
The markup on absorption cost would be closest to:
A)46.0% 
B)10.0% 
C)141.1% 
D)49.7%

Quizplus · Accepted Answer

Unit Product Cost:
 11eaaee8_66d9_d95d_933a_4787bab4a63f_TB5186_00 Markup percentage on absorption cost
= [(Required ROI F1F1F1S1F1F1F10 Investment) + Selling and administrative expenses]
F1F1F1S1F1F1F10 [Unit product cost F1F1F1S1F1F1F10 Units sales]
= [(10% F1F1F1S1F1F1F10 $560,000) + ($4.80 F1F1F1S1F1F1F10 28,000 + $551,600)] F1F1F1S1F1F1F10 [$53.30 F1F1F1S1F1F1F10 28,000]
= ($56,000 + $686,000) F1F1F1S1F1F1F10 $1,492,400 = 49.7%

Jabal Corporation Makes a Product with the Following Costs