A company expects to produce and sell 8,000 units of a single product.Management desires a 20% return on assets of $1,520,000.The following additional company information is available: $\begin{array}{lr}
\text { Variable costs (per unit) } \
\text {Production costs } &\$ 78 \
\text { Nonproduction costs } &\$ 22 \
\text { Fixed costs (in total) } \
\text {Overhead } &\$ 110,000 \
\text { Nonproduction } &\$ 40,000
\end{array}$ Compute markup per unit.Assume that markup percentage equals desired profit divided by total costs.
A)$118.75
B)$156.75
C)$91.75
D)$38.00
E)$100.00

Question

A company expects to produce and sell 8,000 units of a single product.Management desires a 20% return on assets of $1,520,000.The following additional company information is available: $\begin{array}{lr}
 \text { Variable costs (per unit) } \
 \text {Production costs  } &\$ 78 \
 \text { Nonproduction costs } &\$ 22 \
 \text { Fixed costs (in total) } \
 \text {Overhead  } &\$ 110,000 \
 \text { Nonproduction } &\$ 40,000
\end{array}$ Compute markup per unit.Assume that markup percentage equals desired profit divided by total costs.
A)$118.75
B)$156.75
C)$91.75
D)$38.00
E)$100.00

Quizplus · Accepted Answer

The desired profit is 20% of $1,520,000, which is $304,000. Total costs include variable costs ($100 per unit for 8,000 units = $800,000) and fixed costs ($150,000), totaling $950,000. The markup percentage is $304,000 / $950,000 = 32%. The markup per unit is 32% of the total cost per unit ($118.75), which is $38.00.

A Company Expects to Produce and Sell 8,000 Units of a Single