Ladle Corporation uses the absorption costing approach to cost-plus pricing desc

Question

Ladle Corporation uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Based on budgeted sales of 97,000 units next year, the unit product cost of a particular product is $46.90. The company's selling and administrative expenses for this product are budgeted to be $1,914,000 in total for the year. The company has invested $278,000 in this product and expects a return on investment of 14%. The markup on absorption cost for this product would be closest to: Multiple Choice 55.9% 42.1% 42.9% 14.0%

Explanation / Answer

Answer: 42.9%

Mark-up = Selling and administrative expense + Desired return = $1914000 + (14% x $278000) = $1914000 + $38920 = $1952920

Mark-up per unit = $1952920/97000 units = $20.1332

Mark-up percent to unit product cost = $20.1332/$46.90 = 42.9%

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