Mahboud,Inc. ,uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products.Based on budgeted sales of 64,000 units next year,the unit product cost of a particular product is $84.20.The company's selling and administrative expenses for this product are budgeted to be $1,292,800 in total for the year.The company has invested $560,000 in this product and expects a return on investment of 13%. The selling price for this product based on the absorption costing approach would be closest to:
A)$95.15
B)$130.86
C)$104.40
D)$105.54

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)
= [(13% F1F1F1S1F1F1F10 $560,000)+ $1,292,800] F1F1F1S1F1F1F10 ($84.20 per unit F1F1F1S1F1F1F10 64,000 units)
= [$72,800 + $1,292,800] F1F1F1S1F1F1F10 $5,388,800
= [$72,800 + $1,292,800] F1F1F1S1F1F1F10 $5,388,800
= $1,365,600 F1F1F1S1F1F1F10 $5,388,800 = 25.34%
Absorption cost based selling price = (1 + Markup percentage on absorption cost)F1F1F1S1F1F1F10 Unit product cost
= (1 + 0.2534)F1F1F1S1F1F1F10 $84.20 = $105.54