Eckhart Company uses the absorption costing approach to cost-plus pricing as 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 $13.60. The company's selling and administrative expenses for this product are budgeted to be $729,600 in total for the year. The company has invested $460,000 in this product and expects a return on investment of 11%.
-The markup on absorption cost for this product would be closest to:
A) 83.8%
B) 11.0%
C) 94.8%
D) 89.6%

Question

Quizplus · Accepted Answer

To calculate the markup on absorption cost, first calculate the desired profit by multiplying the investment ($460,000) by the desired ROI (11%), which equals $50,600. Then, add the total selling and administrative expenses ($729,600) to the desired profit to get the total required revenue ($780,200). Divide this by the total cost of goods sold (64,000 units x $13.60 = $870,400) to find the markup percentage. The markup percentage is closest to 89.6%.

Eckhart Company Uses the Absorption Costing Approach to Cost-Plus Pricing