Absorption CostingApproach to Setting a Selling Price
Naylor Company is considering the introduction of a new product. Management has gathered the following information:
Number of units to be produced and sold each year | 12,500 |
Unit product cost | $30 |
Projected annual selling and administrative expenses | $60,000 |
Estimated investment required by the company | $500,000 |
Desired return on investment (ROI) | 18% |
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 target selling price per unit.
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