Question

Magney, Inc., uses the absorption costing approach to cost-plus pricing described in the text to set prices for its products. Based on budgeted sales of 28,000 units next year, the unit product cost of a particular product is $62.50. The company's selling and administrative expenses for this product are budgeted to be $826,000 in total for the year. The company has invested $540,000 in this product and expects a return on investment of 11%. The selling price for this product based on the absorption costing approach would be closest to:________

a. $88.21
b. $121.44
c. $90.18
d. $69.93

Answer 1

Answer: $94.12

Step-by-step explanation:

The company expects a return of 11% on $540,000.

= 540,00 * 11%

= $59,400

The total cost:

= 62.50 * 28,000 units

= $1,750,000

Total to be realized from sales:

= Cost of products + selling and administrative expenses + return

= 1,750,000 + 826,000 + 59,400

= $‭2,635,400‬

Selling price per product:

= ‭2,635,400‬ / 28,000 units

= $94.12

Options are most probably for another variant of the question.