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:

The company uses the absorption costing approach to cost-plus pricing.

a. Compute the markup required to achieve the desired ROI. (Round your Required ROI 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.))

b. Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places. )

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) 19,500 $ 58,000 $ 520,000 19%

Explanation / Answer

Here markup is applied on the product cost to recover selling expenses as well the required return on investment:

b.

a,

Unit product cost 55 Total units 19500 A Total product cost 1072500 Sales dollar value: Total product cost        10,72,500 Selling expenses              58,000 Return on investment              98,800 B Required sales value        12,29,300 C=B-A Mark up required           1,56,800 D= C/A *100 Mark up percentage 14.62%

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