Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.
Fixed factory overhead cost |
$38,700 |
Fixed selling and administrative costs |
7,500 |
Variable direct materials cost per unit |
4.60 |
Variable direct labor cost per unit |
1.88 |
Variable factory overhead cost per unit |
1.13 |
Variable selling and administrative cost per unit |
4.50 |
The markup percentage on total cost for the company's product is
a. |
15.8% |
|
b. |
22.6% |
|
c. |
21.0% |
|
d. |
24.0% |
Computation of total cost
Total variable cost = (4.60 + 1.88 + 1.13 + 4.50) * 60,000 units
Total variable cost = $726,600
Total fixed cost = $38,700 + $7,500 = $46,200
Total fixed cost = $46,200
Total cost = Total variable cost + Total fixed cost = $726,600 + $46,200
Total cost = $772,800
Add: Target profit (700000*25%) = $175,000
Total sale value = $947,800.
Mark-up percentage = ($947,800 / $772,800) - 1
Mark-up percentage = 22.6%
Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale...
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