Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year: Werry Company uses the absorption costing approach to cost-plus pricing as described in the text.
-Assume that the company uses a markup of 90% in order to determine selling prices.The selling price under the absorption costing approach would be:
A)$45.60
B)$38.00
C)$41.80
D)$49.40

Question

Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year:  Werry Company uses the absorption costing approach to cost-plus pricing as described in the text.
-Assume that the company uses a markup of 90% in order to determine selling prices.The selling price under the absorption costing approach would be:
A)$45.60 
B)$38.00 
C)$41.80 
D)$49.40

Quizplus · Accepted Answer

Unit product cost = $14 per unit + $6 per unit = $20 per unit
Absorption cost based selling price = (1 + Markup percentage on absorption cost)F1F1F1S1F1F1F10 Unit product cost
= (1 + 0.90)F1F1F1S1F1F1F10 $20 = $38

Werry Company Is About to Introduce a New Product