Jaber Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 52,000 units per year. The company has invested $200,000 in this product and expects a return on investment of 9%.
The markup on absorption cost would be closest to:
A)37.7%
B)9.0%
C)110.8%
D)37.1%

Question

Jaber Corporation makes a product with the following costs:  The company uses the absorption costing approach to cost-plus pricing described in the text.The pricing calculations are based on budgeted production and sales of 52,000 units per year. The company has invested $200,000 in this product and expects a return on investment of 9%.
The markup on absorption cost would be closest to:
A)37.7% 
B)9.0% 
C)110.8% 
D)37.1%

Quizplus · Accepted Answer

Selling and administrative expenses = $2.30 per unit F1F1F1S1F1F1F10 52,000 units + $988,000 = $1,107,600
 11eaa48f_7c0f_ccaa_9e4a_a13f197338f7_TB2485_00 Markup percentage on absorption cost = [(Required ROI F1F1F1S1F1F1F10 Investment)+ Selling and administrative expenses] F1F1F1S1F1F1F10 (Unit product cost F1F1F1S1F1F1F10 Unit sales)
= [(9% F1F1F1S1F1F1F10 $200,000)+ $1,107,600] F1F1F1S1F1F1F10 ($57.40 per unit F1F1F1S1F1F1F10 52,000 units)
= [$18,000 + $1,107,600] F1F1F1S1F1F1F10 $2,984,800
= $1,125,600 F1F1F1S1F1F1F10 $2,984,800 = 37.7%

Jaber Corporation Makes a Product with the Following Costs