Seamons Corporation has the following information available on Product K:
The company uses the absorption costing approach to cost-plus pricing described in the text and a 40% markup.Based on these data,the company's total selling and administrative expenses associated with Product K each year are:
A) $132,000
B) $852,000
C) $528,000
D) $172,800

Question

Seamons Corporation has the following information available on Product K:
 The company uses the absorption costing approach to cost-plus pricing described in the text and a 40% markup.Based on these data,the company's total selling and administrative expenses associated with Product K each year are:
A) $132,000 
B) $852,000 
C) $528,000 
D) $172,800

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
0.40 = [(18% × $600,000) + Selling and administrative expenses] ÷ ($40 per unit × 60,000 units)
0.40 = [($108,000) + Selling and administrative expenses] ÷ ($2,400,000)
($108,000) + Selling and administrative expenses = 0.40 × $2,400,000
$108,000 + Selling and administrative expenses = $960,000
Selling and administrative expenses = $960,000 - $108,000 = $852,000

Seamons Corporation Has the Following Information Available on Product K