Magney, Inc., uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Based on budgeted sales of 38,000 units next year, the unit product cost of a particular product is $61.50. The company's selling and administrative expenses for this product are budgeted to be $814,000 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 11%. The selling price for this product based on the absorption costing approach would be closest to: (Do not round intermediate calculations.)

a. $82.92

b. $68.27

c. $84.19

d. $119.55

Question

Alison

Business

2 January, 15:09

Magney, Inc., uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Based on budgeted sales of 38,000 units next year, the unit product cost of a particular product is $61.50. The company's selling and administrative expenses for this product are budgeted to be $814,000 in total for the year. The company has invested $440,000 in this product and expects a return on investment of 11%. The selling price for this product based on the absorption costing approach would be closest to: (Do not round intermediate calculations.)

a. $82.92

b. $68.27

c. $84.19

d. $119.55

+2

Answers (1)

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Shelly · Answer 1

The correct option is C,$84.19

Explanation:

In calculating selling price based on absorption costing approach, it is appropriate to factor in the following under-listed costs and returns:

The unit cost of the product of $61.50

The selling and administrative expenses totaling $814000

The 11% return on invested amount of $440000

Selling price computation:

Total of product cost ($61.50*38000) = $2,337,000

Selling and administrative expenses = $814,000

Return on investment ($440000*11%) = $48,400

Total revenue $3,199,400

Selling price per unit = $3199400 / 38000

=$84.19