Assume that the company has not yet determined a markup to use on the new product.The new product would require an investment of $1,200,000.The company requires a 25% rate of return on investment in all new products.The markup under the absorption costing approach would be closest to:
A) 70.0%
B) 50.0%
C) 83.3%
D) 63.3%

Question

Quizplus · Accepted Answer

11ea7761_1645_3a72_81a5_5fd70aa10282_TB2580_00 Selling and administrative expenses = ($2 per unit × 40,000 units) + $120,000 = $200,000
Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(0.25 × $1,200,000) + $200,000] ÷ ($15 per unit × 40,000 units)
= [($300,000) + $200,000] ÷ ($600,000)
= $500,000 ÷ $600,000 = 83.3%

Assume That the Company Has Not Yet Determined a Markup