Mercer Company estimates that an investment of $800,000 would be necessary in order to produce and sell 40,000 units of Product A each year. Costs associated with the new product would be: $\begin{array}{lll}
\text { Variable costs (per unit): }&\\text { Production } & \$ 30 \
\text { Selling and admintrative } & \$ 5\
\text { Fixed costs (per year): }&\
\text { Production } & \$ 300,000 \
\text { Selling and administrative } & \$ 240,000
\end{array}$
The company requires a 20% rate of return on the investment on all products.
Required:
a. Compute the markup that would be used under the absorption costing approach to cost-plus pricing as described in the text.
b. Compute the selling price under the absorption costing approach to cost-plus pricing as described in the text.

Question

Mercer Company estimates that an investment of $800,000 would be necessary in order to produce and sell 40,000 units of Product A each year. Costs associated with the new product would be: $\begin{array}{lll}
\text { Variable costs (per unit): }&\\text { Production } & \$ 30 \
\text { Selling and admintrative } & \$ 5\
\text { Fixed costs (per year):  }&\
\text { Production } & \$ 300,000 \
\text { Selling and administrative } & \$ 240,000
\end{array}$
 The company requires a 20% rate of return on the investment on all products.
Required:
a. Compute the markup that would be used under the absorption costing approach to cost-plus pricing as described in the text.
b. Compute the selling price under the absorption costing approach to cost-plus pricing as described in the text.

Quizplus · Accepted Answer

The Answer of Mercer Company estimates that an investment of $800,000 would be necessary in order to produce and sell 40,000 units of Product A each year. Costs associated with the new product would be: $\begin{array}{lll}
\text { Variable costs (per unit): }&\\text { Production } & \$ 30 \
\text { Selling and admintrative } & \$ 5\
\text { Fixed costs (per year):  }&\
\text { Production } & \$ 300,000 \
\text { Selling and administrative } & \$ 240,000
\end{array}$
 The company requires a 20% rate of return on the investment on all products.
Required:
a. Compute the markup that would be used under the absorption costing approach to cost-plus pricing as described in the text.
b. Compute the selling price under the absorption costing approach to cost-plus pricing as described in the text.

Mercer Company Estimates That an Investment of $800,000 Would Be