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