Question

Question 39

Ahmed Corporation makes a mechanical stuffed alligator. The following information is available for Ahmed Corporation’s expected annual volume of 500,000 units:

		Per Unit		Total
Direct materials		$17
Direct labour		8
Variable manufacturing overhead		11
Fixed manufacturing overhead				$360,000
Variable selling and administrative expenses		4
Fixed selling and administrative expenses				150,000

The company has a desired ROI of 25%. It has invested assets of $24,000,000.

(a)

Using absorption-cost pricing, calculate the markup percentage. (Round answer to 2 decimal places, e.g. 15.25%.)

Markup percentage

%

Answer 1

Under Absorption costing variable and fixed selling and administrative expenses are considered as period cost and thus we won't take them into account for calculation here.

Total variable cost per unit: $17 + $8 + $11 = $36

Total contribution: $18,000,000 ($36 * 500,000)

Fixed Cost: $360,000

Desired profit : $24,000,000 * 25% = $6,000,000

Profit = Sales - Variable cost - Fixed cost

Thus, in given case Sales = Profit + variable Cost + Fixed cost

Thus sales = 6,000,000 + 18,000,000 + 360,000

= $24,360,000

Sales price per unit = 24,360,000 / 500,000 = $48.72

Markup required = Sales price - variable cost / varible cost

= 48.72 - 36 /36 =35.33%