Martin Company is considering the introduction of a new product. To determine a

Question

Martin Company is considering the introduction of a new product. To determine a selling price, the company has gathered the following information: Number of units to be produced and sold each year Unit product cost Projected annual selling and administrative expenses Estimated investment required by the company Desired return on investment (ROI) 18,000 $ 68,000 S 510,000 19% The company uses the absorption costing approach to cost-plus pricing Required 1. Compute the markup required to achieve the desired ROl. (Round your Required ROl answers to the nearest whole percentage (i.e, 0.1234 should be entered as 12). Round your "Markup Percentage" answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34.)) Required ROl Investment Selling and administrative expenses Total production cost Unit product cost per unit Unit sales Total sales Markup percentage 2. Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places.) Unit product cost Markup Selling price per unit $ 0.00

Explanation / Answer

1.compute the markup required to achieve the desired ROI:

note:

markup percentage on absorption cost = [(Required ROI) *(Investment) + selling and administrative expenses] / (unit product cost * unit sales)

=>[($510,000 * 19%) +$68,000] / (18,000* $55)

=>($96,900 + 68,000) / 990,000

=>0.1665656565

=>16.66 % (rounded to two decimals).

now,

total sales = total production cost + markup percentage =>$990,000 +16.66% =>$1,154,934

2.Compute selling price per unit.

Required ROI 19% Investment $510,000 Selling and administrative expenses $68,000 Total proiduction cost (18,000 * $55) $990,000 Unit product cost per unit $55 Unit sales 18,000 units Total sales (see note) $1,154,934 Markup percentage (see note) 16.66%

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