Assume That the Company Has Not Yet Determined a Markup

question 120

Multiple Choice

Assume that the company has not yet determined a markup to use on the new product.The new product would require an investment of $1,200,000.The company requires a 25% rate of return on investment in all new products.The markup under the absorption costing approach would be closest to:

• A) 70.0%
• B) 50.0%
• C) 83.3%
• D) 63.3%

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Definitions:

Total Variable Cost

The sum of all variable costs (costs that change with the level of output) involved in producing a particular quantity of output.

Average Variable Costs

The total variable costs (costs that change with the level of output) of production divided by the quantity of output produced.

Best Combination

The optimal mix of goods or strategies that maximizes satisfaction or utility given constraints like budget or resources.

Inputs

Resources such as labor, materials, and capital that are used in the production process to create goods and services.