A book department has $400,000 in yearly operating expenses and planned yearly sales of $4,800,000.If reductions of $55,000 are anticipated and a profit goal of $500,000 is planned,its required initial markup should be 19.7 percent.

Question

Quizplus · Accepted Answer

The required initial markup can be calculated using the formula:
Required initial markup = (Total expenses - Profit goal - Anticipated reductions) / Planned sales
Plugging in the given values, we get:
Required initial markup = ($400,000 - $500,000 - $55,000) / $4,800,000
Required initial markup = $-155,000 / $4,800,000
Required initial markup = -0.0323 or -3.23%
This means that the department would need a markup of at least 3.23% just to cover its expenses and profit goal. However, the statement in the question is that a markup of 19.7% is required, which is greater than 3.23%. Therefore, the statement in the question is true.

A Book Department Has $400,000 in Yearly Operating Expenses and Planned