Question

4.

The Sloan Corporation must invest $186,000 to produce and market 15,000 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:

	Per Unit				Total
Direct materials	$	8.20
Direct labor	$	5.60
Variable manufacturing overhead	$	4.60
Fixed manufacturing overhead					$	84,000
Variable selling and administrative expenses	$	3.60
Fixed selling and administrative expenses					$	76,500

If Sloan Corporation requires a 20% 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

22%

35%

28%

47%

Answer 1

Calculation of Unit Product Cost

Direct Materials 8.20

Direct Labor 5.60

Variable manufacturing Overhead 4.60

Fixed Manufacturing Overhead per unit (84000/15000) 5.60

Unit Product cost 24

Markup percentage on absorption costing = ((required ROI*Investment)+ (sales and administration expenses))/(unit sales *Unit product cost)

((186,000*20%)+(15,000*3.60+76,500))/(15,000*24)

(37,200)+(130,500)/360,000

=>167,700/360,000

=> 46.58%

Therefore 47% is correct answer