The Sloan Corporation must invest $176,000 to produce and market 29,000 units of

Question

The Sloan Corporation must invest $176,000 to produce and market 29,000 units of Product X each year. The company uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Other cost information regarding Product X is as follows:

If Sloan Corporation requires a 10% return on investment, then the markup percentage on absorption cost for Product X (rounded to the nearest percent) would be:

Noreen rechecks 2017-04-04

a. 39%

b. 14%

c. 27%

d. 20%

Per Unit Total Direct materials $ 11.00 Direct labor $ 7.00 Variable manufacturing overhead $ 6.00 Fixed manufacturing overhead $ 203,000 Variable selling and administrative expenses $ 5.00 Fixed selling and administrative expenses $ 188,500

Explanation / Answer

Answer a is correct 39% Working as below Markup percentage on absorption costing ((required ROI*Investment)+ (sales and administration expenses))/(unit sales *Unit product cost) Unit Product Cost Direct material          11.0 Direct labor            7.0 Variable manufacturing Overhead            6.0 Fixed Manufacturing Overhead per unit (203000/29000)            7.0 Unit Product Cost 31 Markup percentage on absorption costing ((176000*10%)+(29000*5+188500))/(29000*31)                                                                                            = 39%

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