The management of Matsuura Corporation would like to set the selling price on a
ID: 2479847 • Letter: T
Question
The management of Matsuura Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product:
Management plans to produce and sell 2,000 units of the new product annually. The new product would require a return on investment of $26,400 (the required ROI x the required investment).
23.62%
2.81%
11.81%
9.00%
The management of Matsuura Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product:
Explanation / Answer
Answer: Selling and administrative expenses = $3 per unit* 2,000 units + $12,000 = $18,000
Markup percentage on absorption cost = [(Required ROI* Investment) + Selling and administrative expenses] /(Unit product cost* Unit sales)
= [$26400 + $18,000] /($94 per unit *2,000 units)
= [44400]/ ($188,000) = 23.62%
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