Minden Corporation Estimates That the Following Costs and Activity Would

question 10

Multiple Choice

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: $\begin{array}{lr}\text { Number of units sold annually}&80,000 \\\text {Required investment. }&\$ 400,000 \\\text { Unit product cost.}&\$ 30 \\\text {Selling and administrative expenses }&\$ 300,000\end{array}$ If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 25% rate of return on investment (ROI) , the required markup on absorption cost for Product A would be closest to:

• A)12%
• B)15%
• C)17%
• D)25%

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Definitions:

Marginal Revenue

The additional income from selling one more unit of a good; sometimes equal to the price of the good.

Marginal Cost

The increase or decrease in the total cost that arises from producing one additional unit of a product or service.

Profit

Earnings resulting from conducting business, after subtracting all operational costs, taxes, and expenses from total revenue.

Tacit Collusion

An unspoken, informal agreement among competitors to avoid certain competitive behaviors, like price undercutting.