Jaakola 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 $360,000 in this product and expects a return on investment of 15%. The markup on absorption cost would be closest to:
A) 27.1%
B) 29.9%
C) 84.3%
D) 15.0%

Question

Jaakola 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 $360,000 in this product and expects a return on investment of 15%. The markup on absorption cost would be closest to:
A) 27.1% 
B) 29.9% 
C) 84.3% 
D) 15.0%

Quizplus · Accepted Answer

Absorption cost per unit = ($360,000/28,000) + ($66 + $54) = $79
Markup on absorption cost = (15% * $79) / $79 = 15%
Therefore, the total cost per unit will be $79, and the markup on absorption cost will be 29.9%.

Jaakola Corporation Makes a Product with the Following Costs