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31 October, 17:24

Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of product Y: Number of units sold annually 30,000 Required investment $500,000 Unit product cost $29 Selling and administrative expenses $222,100 If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 13% rate of return on investment (ROI), the required markup on absorption cost for product Y would be closest to:

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  1. 31 October, 17:36
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    33%

    Explanation:

    Profit : Required Investment = Desired rate of return on investment

    Profit : 500,000 = 0.13

    Profit = $65,000

    Gross Profit required:

    = Profit + Selling and administrative expenses

    = $65,000 + $222,100

    = $287,100

    Gross profit per unit required:

    = Gross Profit required : Number of units sold

    = $287,100 : 30,000

    = $9.57

    Thus, selling price:

    = Gross profit per unit required + Unit product cost

    = $9.57 + $29

    = $38.57

    Markup:

    = selling price : Unit product cost

    = 38.57 : 29

    = 1.33

    (Mark up of 33%)
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