The following information is available on Bruder Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text. Based on these data, the total selling and administrative expenses each year are:
A) $240,000
B) $300,000
C) $140,000
D) $200,000

Question

The following information is available on Bruder Inc.'s Product A:  The company uses the absorption costing approach to cost-plus pricing described in the text. Based on these data, the total selling and administrative expenses each year are:
A) $240,000 
B) $300,000 
C) $140,000 
D) $200,000

Quizplus · Accepted Answer

Absorption cost based selling price = (1 + Markup percentage on absorption cost) × Unit product cost
$80 = (1 + Markup percentage on absorption cost) × $50
1 + Markup percentage on absorption cost = $80 ÷ $50 = 1.6
Markup percentage on absorption cost = 0.6
Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
0.6 = [(15% × $400,000) + Selling and administrative expenses] ÷ ($50 per unit × 10,000 units)
0.6 = [$60,000 + Selling and administrative expenses] ÷ $500,000
$60,000 + Selling and administrative expenses = 0.6 × $500,000
Selling and administrative expenses = $300,000 − $60,000 = $240,000

The Following Information Is Available on Bruder Inc