Assume that a company uses the absorption costing approach to cost-plus pricing. It 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 15,000 Unit product cost $ 35.50 Estimated annual selling and administrative expenses $ 63,900 Estimated investment required by the company $ 780,000 Desired return on investment (ROI) 12 % The selling price that the company would establish using a markup percentage on absorption cost is closest to: Multiple Choice $46.00. $41.80. $48.00. $50.00.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Assume that a company uses the absorption costing approach to cost-plus pricing. It 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 | 15,000 | ||
| Unit product cost | $ | 35.50 | |
| Estimated annual selling and administrative expenses | $ | 63,900 | |
| Estimated investment required by the company | $ | 780,000 | |
| Desired |
12 | % | |
The selling price that the company would establish using a markup percentage on absorption cost is closest to:
-
$46.00.
-
$41.80.
-
$48.00.
-
$50.00.
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