Lacy Corporation uses the absorption costing approach to cost-plus pricing descr

Question

Lacy 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 86,000 units next year, the unit product cost of a particular product is $81.60. The company's selling and administrative expenses for this product are budgeted to be $1,247,000 in total for the year. The company has invested $360,000 in this product and expects a return on investment of 12%. The markup on absorption cost for this product would be closest to: 12.0% 18.4% 29.8% 17.8% please show all work. thanks.

Explanation / Answer

markup on absorption cost = {( return on investment * investment) + selling and administrative expenses} / (unit product cost * unit sales

markup on absorption cost = {( 0.12 * 360000) + 1247000} / 81.60 * 86000 = 18.38%

so answer is 18.4%

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