Question

Martin Company is considering the introduction of a new product. To determine a selling price, the company has gathered the following information:

Number of Units to be produced and sold each Year:	15,500
Unit Product Cost	$35
Projected Annual selling and administrative expenses	$72,000
Estimated Investment required by the company	$470,000
Desired Return on Investment (ROI)	19%

The company uses the absorption costing approach to cost-plus pricing.

Required:

1. Compute the markup required to achieve the desired ROI. (Round your Required ROI answers to the nearest whole percentage (i.e, 0.1234 should be entered as 12). Round your "Markup Percentage" answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34.))

Required ROI	19%
Investment	$470,000
Selling and Administrative Expenses	$72,000
Total Production Cost	?
Unit Product Cost per unit	$35
Unit Sales	15,500
Total Sales	$542,500
Markup Percentage	?

2. Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places. )

Unit Product Cost	$35.00
Markup	?
Selling Price Per unit	?

Answer 1

Solution 1:

Computation of markup required to achieve desired ROI
Particulars	Amount
Required ROI	19%
Investment	$470,000.00
Selling and Administrative Expenses	$72,000.00
Total Production Cost	$542,500.00
Unit Product Cost per unit	$35.00
Unit Sales	15500
Total Sales	$703,800.00
Markup percentage	29.73%

Solution 2:

Computation of selling price per unit
Particulars	Amount
Unit Product Cost	$35.00
Markup	29.73%
Selling price per unit	$45.41