Question

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Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 55,400 units of its sole product. Magpie desires a profit equal to a 18% rate of return on invested assets of $578,000. Fixed factory overhead cost Fixed selling and administrative costs Variable direct materials cost per unit Variable direct labor cost per unit Variable factory overhead cost per unit Variable selling and administrative cost per unit The markup percentage on total cost for the company's product is $39,800 7,400 4.78 1.88 1.13 4.50 a. 11.4% b. 18.6% , 24.3% od, 14.3%

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Answer 1

Problem 1 –

Solution:

Desired Profit on Invested Assets = Invested Amount $578,000 x Rate of Return 18% = $104,040

Calculation of Total Costs

	Total $$
Variable Direct Material Costs ($4.78*55,400 Units)	$264,812
Variable Direct Labor Costs ($1.88*55,400 Units)	$104,152
Variable manufacturing overhead costs ($1.13*55,400 Units)	$62,602
Fixed factory overhead costs	$39,800
Total Manufacturing Costs	$471,366
Plus: Variable Selling and Administrative Costs (55,400 Units x 4.50)	$249,300
Plus: Fixed Selling and Admn Costs	$7,400
Total Costs	$728,066
Desired Profit Margin (as calculated above)	$104,040
Mark Up Percentage on total cost (104,040 / 728,066 x 100)	14.3%

Hence, the correct option is 14.3%

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