Question

Coronado Industries has gathered the following information concerning one model of shoe:

Variable manufacturing costs	$25000
Variable selling and administrative costs	$15000
Fixed manufacturing costs	$160000
Fixed selling and administrative costs	$120000
Investment	$1600000
ROI	30%
Planned production and sales	5000 pairs

What is the markup percentage?

1200%

171%

150%

259%

Answer 1

Answer) Markup percentage is 150%

Explanation :

ROI = 30% (Given)

Investment = $1,600,000 (Given)

Return or Profit = 30% of $1,600,000

= $480,000

Profit = Sales - Total Variable Cost - Total Fixed Cost

Total Variable Cost = Variable Manufacturing Costs + Variable Selling and Administrative Costs

= $25,000 + $15,000

= $40,000

Total Fixed Cost = Fixed Manufacturing Costs + Fixed Selling and Administrative Costs

= $160,000 + $120,000

= $280,000

Therefore,

$480,000 = Sales - $40,000 - $280,000

Sales = $480,000 + $280,000 + $40,000

Sales = $800,000

Sales = Selling Price per unit * Number of units sold

$800,000 = Selling Price per unit * 5,000

Selling Price per unit = $800,000 / 5,000

Selling Price per unit = $160

Variable Cost per unit = Total Variable Cost / Number of units produced and sold

= $40,000 / 5,000

= $8

Fixed Cost per unit = Total Fixed Cost / Number of units produced and sold

= $280,000 / 5,000

= $56

Total Cost per unit = Variable Cost per unit + Fixed Cost per unit

= $8 + $56

= $64

Markup percentage = [(Sales Price per unit - Total Cost per unit) / Total Cost per unit] * 100

= [($160 - $64) / $64] * 100

= ($96 / $64) * 100

= 1.5 * 100

= 150%

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