Martin Company is conaidaring the introduction of a new produot. To determine a

Question

Martin Company is conaidaring the introduction of a new produot. To determine a selling prioe,the company has gatherad tha following information: Number cf units to be produced and sold each year Unt product cost Projected annual selling and administrative expenses Eatmated inveatment roquirod by the company Desired returm on ivestment (ROI) 11,500 $30 $ 62,000 $510,000 19% The company usos the absorption costing approach to cost plus pricing. Required: 1. Compute the markup required to achieve the desired ROl (Round your Required ROI answers to the nearest whole percentage (le, 0.1234 should be entered a8 12). Round your "Markup Percentage" answers to 2 decimal places(le., 0.1234 should be entered as 12.34) Investment Selling and administraive production cost Unit product cost per unit Unit sales Total sales elling price per to 2 decimal places.) uniL (Round youri 2Compute nhe Unit product cost Selling price pe 0.

Explanation / Answer

1. Required ROI = 19%

Investment = $510,000

Selling and administrative expenses = $62,000

Total production cost = Investment + Selling and administrative expenses = 510,000+62,000 = $572,000

Unit product cost per unit = Total production cost ÷ Number of Units to be produced = 572,000÷11,500 = $49.74

Unit sales = 11,500 units

Total sales = Total production cost + ROI = 572,000+19%×510,000 = 572,000+96,900 = $668,900

Markup percentage = ROI ÷ Total production cost = 19%×510,000÷572,000 = 96,900÷572,000 = 16.94%

2.

Unit product cost $49.74 Markup (16.94% × 49.74) 8.43 Selling price per unit $58.17

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