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:
$\begin{array}{cr}\text { Variable costs (per unit) }\
\text { Production costs } & \$ 105 \
\text { Nonproduction costs } & \$ 9 \
\text { Fixed costs (in total) } & \
\text { Overhead } & \$ 350,000 \
\text { Nonproduction } & \$ 120,000
\end{array}$
Compute selling price per unit given that markup percentage equals desired profit divided by total costs.

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:
$\begin{array}{cr}\text { Variable costs (per unit) }\
\text { Production costs } & \$ 105 \
\text { Nonproduction costs } & \$ 9 \
\text { Fixed costs (in total) } & \
\text { Overhead } & \$ 350,000 \
\text { Nonproduction } & \$ 120,000
\end{array}$
 Compute selling price per unit given that markup percentage equals desired profit divided by total costs.

Quizplus · Accepted Answer

To find the selling price per unit, first calculate the desired profit: 22% of $3,000,000 = $660,000. Total variable costs per unit are $114 ($105 + $9). Total fixed costs are $470,000 ($350,000 + $120,000). Total costs for 20,000 units are $2,750,000 (20,000 units x $114 + $470,000). 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