Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A:
If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI),the required markup on absorption cost for Product A would be closest to:
A) 12%
B) 15%
C) 60%
D) 72%

Question

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A:
 If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI),the required markup on absorption cost for Product A would be closest to:
A) 12% 
B) 15% 
C) 60% 
D) 72%

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(15% × $800,000) + $600,000] ÷ ($25 per unit × 40,000 units)
= [($120,000) + $600,000] ÷ $1,000,000
= $720,000 ÷ $1,000,000 = 72%

Minden Corporation Estimates That the Following Costs and Activity Would