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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