Figure 10-6
Multiple Products Co. has predicted the following costs for this year for 100,000 units: $\begin{array}{lcc}&&\text { Selling and }\&\text { Manufacturing }&\text { Administrative }\\hline
\text { Variable } & £ 400,000 & £ 100,000 \
\text { Fixed } & 600,000 & 300,000 \
\text { Total } & £ 1,000,000 & £ 400,000
\end{array}$
-Refer to Figure 10-6. What is the manufacturing cost mark up needed to obtain a target profit of £100,000?
A)100 per cent
B)67 per cent
C)50 per cent
D)25 per cent

Question

Quizplus · Accepted Answer

The total manufacturing cost is £1,000,000 for 100,000 units, which is £10 per unit. To achieve a target profit of £100,000, the total revenue needs to be £1,100,000, which is £11 per unit. The markup needed is (£11 - £10) / £10 = 0.10 or 10%. However, since the question asks for the markup on manufacturing cost, which is £10, the markup is (£11 - £10) / £10 = 0.10 or 10%. Therefore, the correct markup percentage is 50% to cover both costs and desired profit.

Figure 10-6 Multiple Products Co -Refer to Figure 10-6

Figure 10-6
Multiple Products Co -Refer to Figure 10-6