Santana Furniture Inc. is setting a target price on its newly designed leather recliner sofa. Cost data for the sofa at a budgeted volume of 3,000 units are as follows:

Santana Furniture uses cost-plus pricing to provide a 30% ROI on its stuffed furniture line. A total of $700,000 in assets has been committed to the production of the new leather recliner sofa.
Instructions
(a) Calculate the markup percentage under the absorption-cost approach that will allow Santana Furniture to realize its desired ROI.
(b) Calculate the target price of the sofa under absorption-cost pricing, and show proof that the desired ROI is realized.
(c) Calculate the markup percentage under the variable-cost approach that will allow Santana Furniture to realize its desired ROI.
(d) Calculate the target price of the sofa under variable-cost pricing, and show proof that the desired ROI is realized.
(e) Since both absorption-cost pricing and variable-cost pricing produce the same target price and provide the same ROI, why do both methods exist? Isn't one method clearly better than the other?

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Per Unit Total Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $140 80 40 $180,000 20 90,000