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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 14,000
Unit product cost $ 25
Projected annual selling and administrative expenses $ 50,000
Estimated investment required by the company $ 750,000
Desired return on investment (ROI) 12 %
The company uses the absorption costing approach to cost-plus pricing.

Required:
1. Compute the markup required to achieve the desired ROI.
2.Compute the selling price per unit.

Respuesta :

hoangkhangpham94

Answer:

1. The markup required to achieve the desired ROI: 40%;

2. Selling price per unit: $35.

Explanation:

1.

We have:

Allocated annual selling and administrative expenses per unit sold = 50,000 / 14,000 = $3.57.

Desired return per unit sold = 750,000 x 12% / 14,000 = $6.43.

Total markup per unit sold in monetary term = 3.57 + 6.43 = $10 => Total markup per unit sold in percentage term = 10/ Unit product cost = 10/25 = 40%.

2.

Selling price = Unit product cost + Total markup per unit sold in monetary term = 25 + 10 = $35.

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