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:
$$\begin{array} { l r r }
\text{Variable costs (per unit)}&&\
~\text{Production costs}&&\$78\
~\text{Nonproduction costs}&&\$22\
\text{Fixed costs (in total)}&&\
~\text{Overhead}&&\$110,000\
~\text{Nonproduction}&&\$40,000\
\end{array}$$
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:
$$\begin{array} { l r r } 
\text{Variable costs (per unit)}&&\
~\text{Production costs}&&\$78\
~\text{Nonproduction costs}&&\$22\
\text{Fixed costs (in total)}&&\
~\text{Overhead}&&\$110,000\
~\text{Nonproduction}&&\$40,000\
\end{array}$$
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

Total costs: [($78 + 22) x 8,000 units] + $110,000 + $40,000 = $950,000
Total cost per unit: $950,000/8,000 units = $118.75
Desired profit: $1,520,000 x .20 = $304,000
Markup per unit: $118.75 x ($304,000/$950,000) = $38.00

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