Question

LK Corporation uses the absorption costing approach to cost-plus pricing. For a particular product, the company invested $274,000 and expects a return on investment of 12%. Based on budgeted sales of 60,000 units next year, the unit cost is $42.20. The company's selling and administrative expenses for this product are budgeted to be $800,000. The markup on absorption cost for this product would be closest to:

Answer 1

Step-by-step explanation:

Total investment made : 274000

Expected return : 12%

Return in amount : 274000*12%

= 32880

A. Budgeted sales quantity : 60000

B. Unit cost : 42.20

C.Total cost of sales (A*B) : 2532000

D.Selling and Administrative expenses : 800000

E.Total Cost(C+D) : 3332000

F. Return required : 32880

G. Total sales (F+E) : 3364880

H.Selling Price per unit (G/60000): 56.08

I.Mark up as per absorption costing(H-B) : 13.88

J.Mark Up percentage (I/B) x 100 : 32.87 %