Honey Bell Corporation Eclipse Product Expected Sales 10,000 units Direct material and labor costs $ 150 per unit Variable manufacturing overhead $ 20 per unit Fixed manufacturing overhead $ 300,000 Fixed selling and administrative expenses $ 150,000 Average operating assets $ 2,000,000 Required return on investment 20 % What should be the markup percentage on the absorption costing unit cost?

20%

Explanation:

Absorption costings values inventory and units produced using the full cost per units.

Total sales values = Total cost + Return on investment

Return on investment = 20% * 2,000,000 = 400,000.

Profit per unit = 400,000/10,000 units

= 40 per unit

Total production cost = Variable cost + Fixed production overhead

= ((150 + 20) * 10,000 + (300,000)

= 2,000,000

Cost per unit = 2,000,000/10,000 = 200

mark-up in (%) = profit per unit / cost per unit

= (40/200) * 100 = 20%

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