Exercise 12A-1 Absorption Costing Approach to Cost-Plus Pricing [LO12-8] Martin 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 14,000 Unit product cost $ 25 Estimated annual selling and administrative expenses $ 50,000 Estimated investment required by the company $ 750,000 Desired return on investment (ROI) 12 %

The selling price per unit is $35

Explanation:

In computing the selling price for each of the expected units produced and sold each year of 14,000 units,the total production cost is added to the administrative expenses as well as the return on investment i.e 12% of $750,000.

Product cost($25*14000)                       $350,000

selling and administrative expenses     $50,000

Total cost                                                 $400,000

return on investment(12%*$750,000)     $90,000

Total sales value                                       $490,000

selling price per unit=sales value/units sold=$490,000/14000=$35

The established selling price per unit is $35

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