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Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: Number of units sold annually 32,000 Required investment $ 520,000 Unit product cost $ 31 Selling and administrative expenses $ 170,000 If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for Product A would be closest to:

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Answer:

markup % = 6.71%

markup in $ = $2.4375

selling price per unit = $38.75

Explanation:

budgeted sales units = 32,000

COGS ($992,000)

S&A expenses ($170,000)

required return = $520,000 x 15% = ($78,000)

total cost per unit = ($992,000 + $170,000) / 32,000 = $36.3125

total sales revenue = 32,000 x selling price = $1,240,000

selling price = $1,240,000 / 32,000 units = $38.75 per unit

markup % = (sales price per unit / total cost per unit) - 1 = ($38.75 / $36.3125) - 1 = 6.71%

mark up in $ = $38.75 - $36.3125 = $2.4375

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