Reference no: EM132523724
The Li Company manufactures a variety of household appliances. In the near future, the company would like to produce and market a new kind of baking oven.
The accounting and engineering departments of the company have developed the following unit cost data based on an activity level of 60,000 units per year:
Per Unit Total
Direct Materials $50
Direct Labour $60
Variable Overhead $15
Fixed Overhead $600,000
Variable Selling and Admin $10
Fixed Selling and Admin $360,000
Additional investment of $1,200,000 is also necessary to carry inventories and accounts receivable and purchase new equipment. The company desires a 25% return on investment (ROI) for new products.
Required:
1. Assume the company uses the full (absorption) costing approach.
Question a. Compute the markup in dollars needed to achieve the desired 25% ROI. All calculations should be rounded to two decimal places.
2. Assume the company uses the variable costing approach.
Question b. Compute the markup percentage needed to achieve the desired 25% ROI. All calculations should be rounded to two decimal place
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