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17 April, 14:06

Based on budgeted sales of 29,000 units next year, the unit product cost of a particular product is $62.60. The company's selling and administrative expenses for this product are budgeted to be $827,200 in total for the year. The company has invested $550,000 in this product and expects a return on investment of 12%. The selling price for this product based on the absorption costing approach would be closest to:

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  1. 17 April, 14:42
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    The selling price for this product based on absorption costing approach would be closest to $93.40

    Explanation:

    Total revenue to be generated so as to cover cost of product, selling and administrative expenses as well as the return on investment of 12% on the invested $550000.

    As result total sales value is given as:

    Total product cost 29000*$62.60 $1,815,400

    Selling and administrative expenses $827,200

    Return on investment 12%*$550000 $66000

    Total sales revenue $2,708,600

    Selling price=total sales revenue/total quantity

    Selling price=$2708600/29000=$93.4
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