Question

Ahmed Corporation makes a mechanical stuffed alligator. The following information is available for Ahmed Corporation’s expected annual volume of 500,000 units:

		Per Unit		Total
Direct materials		$15
Direct labour		6
Variable manufacturing overhead		13
Fixed manufacturing overhead				$400,000
Variable selling and administrative expenses		6
Fixed selling and administrative expenses				150,000

The company has a desired ROI of 40%. It has invested assets of $24,900,000.

Using absorption-cost pricing, calculate the markup percentage. (Round answer to 2 decimal places, e.g. 15.25%.)

Markup percentage

%

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Using variable-cost pricing, calculate the markup percentage. (Round answer to 2 decimal places, e.g. 15.25%.)

Markup percentage

%

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Answer 1

Answer
1	Mark-up cost (using absorbtion cost pricing)	19.92/41.10
		48.47%
2	Mark-up cost (using variable cost pricing)	19.92/40
		49.80%
	Where variable cost is$ 40 (15+6+13+6)
Working Note
I	Computation of Total cost per unt
	Direct material	15
	Direct labour	6
	Variable manufacturing overhead	13
	Fixed manufacturing overhead	0.80	400000/50000
	Variable selling and administrative overhead	6
	Fixed selling and administrative overhead	0.30	1500000/500000
	Total cost per unit	41.1
II	Desired ROI per unit	(24900000*40%)/500000	(desired return/total units)
		19.92