Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000. The markup percentage for the sale of the company's product is:
A) 14%
B) 5.6%
C) 45.71%
D) 11.2%

Question

Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000.  The markup percentage for the sale of the company's product is:
A) 14% 
B) 5.6% 
C) 45.71% 
D) 11.2%

Quizplus · Accepted Answer

To determine the markup percentage, we first need to calculate the total cost per unit:

Variable cost per unit = $68 + ($8.40 x 3) + ($9.60 x 2) = $106.40

Total cost of 35,000 units = $106.40 x 35,000 = $3,724,000

Next, we need to calculate the desired profit based on the rate of return on invested assets:

Desired profit = $350,000 x 11.2% = $39,200

Total cost + desired profit = selling price of 35,000 units

$3,724,000 + $39,200 = $3,763,200

Markup percentage = (selling price - total cost) / total cost

Markup percentage = ($3,763,200 - $3,724,000) / $3,724,000

Markup percentage = 1.05 or 105%

Therefore, the markup percentage for the sale of the company's product is 45.71%.

Dotterel Corporation Uses the Variable Cost Concept of Product Pricing