Mercer Company Is Planning the Introduction of a New Product

question 13

Multiple Choice

Mercer Company is planning the introduction of a new product. The following information relating to the product has been assembled:
$\begin{array}{|l|r|}\hline \text { Variable Costs (per unit) : } & \\\hline \text { Materails, Labour, and Overhead } & \$ 12 \\\hline \text { Selling and Administrative } & \$ 3 \\\hline \text { Fixed Costs per Year: } & \$ 360,000 \\\hline \text { Manufacturing Overhead } & \$ 300,000 \\\hline \text { Selling and Administrative } & \$ 650,000 \\\hline \text { Investment Required } & 25 \% \\\hline \text { Required Rate of Return } & 60,000 \\\hline \text { Total Units to Be Produced and Sold Each Year } & \\\hline\end{array}$
The company uses the absorption costing approach to pricing.
- The markup percentage that would be needed on the new product is closest to which of the following?

• A) 12.5%.
• B) 24.0%.
• C) 51.0%.
• D) 59.5%.

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Definitions:

Income Statement Columns

The part of the income statement that provides a detailed breakdown of revenue, expenses, and profit over a specific period, often presented in a multi-column format.

Balance Sheet Columns

Balance sheet columns refer to the structured format in financial reporting that outlines a company's assets, liabilities, and shareholders' equity at a specific point in time.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenue.

Net Loss

The amount by which a company's expenses exceed its revenues, resulting in a negative profit.