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:
$\begin{array}{cr}\text { Variable costs (per unit) }\
\text { Production costs } & \$ 78 \
\text { Nonproduction costs } & \$ 22 \
\text { Fixed costs (in total) } & \
\text { Overhead } & \$ 110,000 \
\text { Nonproduction } & \$ 40,000
\end{array}$
Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs.

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: 
$\begin{array}{cr}\text { Variable costs (per unit) }\
\text { Production costs } & \$ 78 \
\text { Nonproduction costs } & \$ 22 \
\text { Fixed costs (in total) } & \
\text { Overhead } & \$ 110,000 \
\text { Nonproduction } & \$ 40,000
\end{array}$
Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs.

Quizplus · Accepted Answer

The desired profit is 20% of $1,520,000, which is $304,000. Total variable costs are $800,000 (8,000 units x $100), and total fixed costs are $150,000. Total costs are $950,000. The markup percentage is $304,000 / $950,000 = 32%. The markup per unit is 32% of the total cost per unit ($100 + $18.75), which is $38.00.

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