Question

direct materials $34, direct labor $27, variable manufacturing overhead $15, fixed manufacturing overhead $43, variable selling and administrative expenses $20, and fixed selling and administrative expenses $28. Its desired ROI per unit is $31. Compute the markup percentage using absorption-cost pricing.

Answer 1

Mark- up = 26.05%

Step-by-step explanation:

Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e.g machine hours, labour hours e.t.c. Units are valued using full cost per unit

Full cost per unit= Direct material cost + direct labor cost + variable manufacturing overhead + fixed manufacturing overhead

Note that the selling and administrative expenses are period cost which are not to be considered as production cost, hence they are excluded.

Full cost per unit= 34 + 27 +15 +43 = 119

ROI per unit/profit per unit = 31

Mark- up under absorption costing is profit expressed as a percentage of of the full cost.

Mark- up = 31/119 × 100 = 26.05%

Mark- up = 26.05%