Georgia Gould Bikes Inc. is in the process of setting a target price on its newly designed mountain bike. Cost data relating to the bike at a budgeted volume of 20,000 units are as follows.

Georgia Gould Bikes uses cost-plus pricing methods that are designed to provide the company with a 25% ROI on its mountain bike line. A total of $20,000,000 in assets is committed to production of the new mountain bike.

Instructions
(a) Compute the markup percentage under absorption-cost pricing that will allow Georgia Gould Bikes to realize its desired ROI.
(b) Compute the target price of the bike under absorption-cost pricing, and show proof that the desired ROI is realized.
(c) Compute the markup percentage under variable-cost pricing that will allow Georgia Gould Bikes to realize its desired ROI. (Round to three decimal places.)
(d) Compute the target price of the bike under variable-cost pricing, and show proof that the desired ROI is realized. (Round to nearest dollar.)
(e) Since both the absorption-cost pricing and variable-cost pricing produce the same target price and provide the same desired ROI, why do both methods exist? Isn€™t one method clearly superior to theother?

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Total Per Unit $200 $100 S 30 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses 20 Fixed selling and administrative expenses $1,400,000 $ 200,000