Question 1

Joeston Corporation makes a product with the following costs: $\begin{array}{lrr}
&\text { Per Unit } & \text { Per Year } \
\text {Direct materials }&\$ 14.70 & \
\text {Direct labor }&\$ 14.10 & \
\text {Variable manufacturing overhead }&\$ 3.70 \\text { Fixed manufacturing overhead. }&&\$305,200\\text { Variable selling and administrative expenses }&\$3.00\\text { Fixed selling and administrative expenses }&&\$163,800
\end{array}$ The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 14,000 units per year. The company has invested $540,000 in this product and expects a return on investment of 10%. The markup on absorption cost would be closest to:

Accepted Answer

A) 27.1% 
B) 124.2% 
C) 34.2% 
D) 10.0%

Question 2

Timax Corporation, a manufacturer of moderate-priced time pieces, would like to introduce a new electronic watch. To compete effectively, the watch could not be priced at more than $50. The company requires a return on investment of 25% on all new products. The plan is to produce and sell 20,000 watches each year. This would require a $500,000 investment. The target cost per watch would be:

Accepted Answer

A) $64.00 
B) $25.00 
C) $43.75 
D) $39.00

Exam 1: Pricing Products and Services