Lafave Corporation uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 79,000 units next year,the unit product cost of a particular product is $50.80.The company's selling and administrative expenses for this product are budgeted to be $1,896,000 in total for the year.The company has invested $260,000 in this product and expects a return on investment of 15%. The markup on absorption cost for this product would be closest to:
A)62.2%
B)15.0%
C)47.2%
D)48.2%

Question

Quizplus · Accepted Answer

Markup percentage on absorption cost = [(Required ROI F1F1F1S1F1F1F10 Investment)+ Selling and administrative expenses] F1F1F1S1F1F1F10 (Unit product cost F1F1F1S1F1F1F10 Unit sales)
= [(15% F1F1F1S1F1F1F10 $260,000)+ $1,896,000] F1F1F1S1F1F1F10 ($50.80 per unit F1F1F1S1F1F1F10 79,000 units)
= ($39,000 + $1,896,000)F1F1F1S1F1F1F10 $4,013,200
= $1,935,000 F1F1F1S1F1F1F10 $4,013,200 = 48.2%

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