Eckhart Company Uses the Absorption Costing Approach to Cost-Plus Pricing

question 42

Multiple Choice

Eckhart Company uses the absorption costing approach to cost-plus pricing as described in the text to set prices for its products. Based on budgeted sales of 64,000 units next year, the unit product cost of a particular product is $13.60. The company's selling and administrative expenses for this product are budgeted to be $729,600 in total for the year. The company has invested $460,000 in this product and expects a return on investment of 11%.
-The markup on absorption cost for this product would be closest to:

• A) 83.8%
• B) 11.0%
• C) 94.8%
• D) 89.6%

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Definitions:

Common Stock Account

An equity account that represents the amount of shares owned by shareholders in a corporation.

Temporary Accounts

Accounts used to record transactions for only a single accounting period, which are then reset or closed at the period's end, such as revenues, expenses, and dividends.

Supplies

Items used in the operation of a business that are not directly related to the production of goods or services, such as office supplies.

Prepaid Expenses

Payments made in advance for goods or services that will be received in the future.