Question

g 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 11,500 Unit product cost $ 35 Projected annual selling and administrative expenses $ 58,000 Estimated investment required by the company $ 540,000 Desired return on investment (ROI) 20 % The company uses the absorption costing approach to cost-plus pricing. Required: 1. Compute the markup required to achieve the desired ROI.

Answer 1

Mark-up = 26.83%

Step-by-step explanation:

Mark-up is the proportion of cost that unit cost that must be achieved as profit.

Return on Investment is the proportion investment that is earned as operating income.

Operating income = ROI × investment = 20%× 540,000=108,000

Profit per unit = total operating income /Number of units

=$108,000/11,500 units

=$9.391 per unit

Mark-up = (Profit per unit ÷unit cost)× 100

Mark- up = $9.391 /35 × 100 =26.83

Mark-up = 26.83%