A Firm Employs Average Assets of $600 000 and Calculates

question 91

Multiple Choice

A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired return on investment of 20 per cent. Expected production is 10 000 units, and the full cost per unit is $80. If the firm changed its pricing policy and determined in future to calculate its mark-up based on absorption cost, which of the following statements (if any) is correct about the firm's new mark-up percentage?

• A) The mark-up percentage will be lower.
• B) The mark-up percentage will be higher.
• C) Because the price charged will be the same, there will be no change in the mark-up percentage.
• D) None of the given answers

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Definitions:

Specialize In Producing

The practice in which individuals, companies, or countries focus on the production of a limited scope of products or services to gain greater degrees of productive efficiency within an overall system.

Trade

The exchange of goods, services, or both between two or more parties, wherein each party benefits from the transaction.

Opportunity Cost

The expense associated with missing out on the second-best choice when deciding or selecting a course of action.

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