A company expects to produce and sell 20,000 units of a single product.Management desires a 22% return on assets of $3,000,000.The following additional company information is available: $\begin{array}{lr}
\text { Variable costs (per unit) } \
\text {Production costs } &\$ 105 \
\text { Nonproduction costs } &\$9 \
\text { Fixed costs (in total) } \
\text {Overhead } &\$ 350,000 \
\text { Nonproduction } &\$ 120,000
\end{array}$ Compute selling price per unit given that markup percentage equals desired profit divided by total costs.
A)$137.50
B)$33.00
C)$170.50
D)$114.00
E)$122.50

Question

A company expects to produce and sell 20,000 units of a single product.Management desires a 22% return on assets of $3,000,000.The following additional company information is available: $\begin{array}{lr}
 \text { Variable costs (per unit) } \
 \text {Production costs  } &\$ 105 \
 \text { Nonproduction costs } &\$9 \
 \text { Fixed costs (in total) } \
 \text {Overhead  } &\$ 350,000 \
 \text { Nonproduction } &\$ 120,000
\end{array}$ Compute selling price per unit given that markup percentage equals desired profit divided by total costs.
A)$137.50
B)$33.00
C)$170.50
D)$114.00
E)$122.50

Quizplus · Accepted Answer

The desired profit is 22% of $3,000,000, which is $660,000. Total variable costs are $114 per unit ($105 + $9), and total fixed costs are $470,000 ($350,000 + $120,000). Total costs for 20,000 units are $2,750,000 (20,000 units * $114 + $470,000). The markup percentage is $660,000 / $2,750,000 = 24%. The selling price per unit is $114 * 1.24 = $170.50.

A Company Expects to Produce and Sell 20,000 Units of a Single