Dieckman Company 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 71,000 units per year.
The company has invested $360,000 in this product and expects a return on investment of 13%.
Direct labor is a variable cost in this company.

-The markup on absorption cost is closest to:
A)25.7%
B)13.0%
C)24.2%
D)72.4%

Question

Dieckman Company 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 71,000 units per year.
The company has invested $360,000 in this product and expects a return on investment of 13%.
Direct labor is a variable cost in this company.

-The markup on absorption cost is closest to:
A)25.7% 
B)13.0% 
C)24.2% 
D)72.4%

Quizplus · Accepted Answer

The markup on absorption cost is calculated by dividing the profit by the absorption cost and then converting it to a percentage. The closest percentage to the given options is 25.7%.

Dieckman Company Makes a Product with the Following Costs