The following information is available on Bruder Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data,the total selling and administrative expenses each year are:
A)$240,000
B)$300,000
C)$140,000
D)$200,000

Question

The following information is available on Bruder Inc.'s Product A:  The company uses the absorption costing approach to cost-plus pricing described in the text.Based on these data,the total selling and administrative expenses each year are:
A)$240,000 
B)$300,000 
C)$140,000 
D)$200,000

Quizplus · Accepted Answer

Absorption cost based selling price = (1 + Markup percentage on absorption cost)F1F1F1S1F1F1F10 Unit product cost
$80 = (1 + Markup percentage on absorption cost)F1F1F1S1F1F1F10 $50
1 + Markup percentage on absorption cost = $80 F1F1F1S1F1F1F10 $50 = 1.6
Markup percentage on absorption cost = 0.6
Markup percentage on absorption cost = [(Required ROI F1F1F1S1F1F1F10 Investment)+ Selling and administrative expenses] F1F1F1S1F1F1F10 (Unit product cost F1F1F1S1F1F1F10 Unit sales)
0.6 = [(15% F1F1F1S1F1F1F10 $400,000)+ Selling and administrative expenses] F1F1F1S1F1F1F10 ($50 per unit F1F1F1S1F1F1F10 10,000 units)
0.6 = [$60,000 + Selling and administrative expenses] F1F1F1S1F1F1F10 $500,000
$60,000 + Selling and administrative expenses = 0.6 F1F1F1S1F1F1F10 $500,000
Selling and administrative expenses = $300,000 - $60,000 = $240,000

The Following Information Is Available on Bruder Inc