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 ($2,280,000 variable + $470,000 fixed). The markup percentage is $660,000 / $2,750,000 = 24%. The selling price per unit is $114 + 24% of $114 = $170.50.

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