Qudsi Company makes a product that has the following costs:
The company uses the absorption costing approach to cost-plus pricing as described in the text.The pricing calculations are based on budgeted production and sales of 36,000 units per year.
The company has invested $580,000 in this product and expects a return on investment of 12%.
Required:
a.Compute the markup on absorption cost.
b.Compute the selling price of the product using the absorption costing approach.
c.Assume that every 10% increase in price leads to a 13% decrease in quantity sold.Assuming no change in cost structure and that direct labor is a variable cost,compute the profit-maximizing price.

Question

Qudsi Company makes a product that has the following costs:  
The company uses the absorption costing approach to cost-plus pricing as described in the text.The pricing calculations are based on budgeted production and sales of 36,000 units per year.
The company has invested $580,000 in this product and expects a return on investment of 12%.
Required:
a.Compute the markup on absorption cost.
b.Compute the selling price of the product using the absorption costing approach.
c.Assume that every 10% increase in price leads to a 13% decrease in quantity sold.Assuming no change in cost structure and that direct labor is a variable cost,compute the profit-maximizing price.

Quizplus · Accepted Answer

The Answer of Qudsi Company makes a product that has the following costs:  
The company uses the absorption costing approach to cost-plus pricing as described in the text.The pricing calculations are based on budgeted production and sales of 36,000 units per year.
The company has invested $580,000 in this product and expects a return on investment of 12%.
Required:
a.Compute the markup on absorption cost.
b.Compute the selling price of the product using the absorption costing approach.
c.Assume that every 10% increase in price leads to a 13% decrease in quantity sold.Assuming no change in cost structure and that direct labor is a variable cost,compute the profit-maximizing price.

Qudsi Company Makes a Product That Has the Following Costs