Ecob Corporation uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 19,000 units next year, the unit product cost of a particular product is $16.00. The company's selling and administrative expenses for this product are budgeted to be $250,800 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 14%.
-The markup on absorption cost for this product would be closest to:
A) 96.5%
B) 102.8%
C) 14.0%
D) 82.5%

Question

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI × Investment) + Selling and administrative expenses] ÷ (Unit product cost × Unit sales)
= [(14% × $440,000) + $250,800] ÷ ($16.00 × 19,000 units)
= [($61,600) + $250,800] ÷ ($304,000)
= [$312,400] ÷ $304,000 = 102.8% (rounded)

Ecob Corporation Uses the Absorption Costing Approach to Cost-Plus Pricing