If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are $168 000 and the total variable cost per unit is $450, then what is the mark-up percentage on total variable cost?

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Quizplus · Accepted Answer

The mark-up percentage on total variable cost is calculated by dividing the target profit by the total variable cost and then multiplying by 100. First, calculate the total variable cost: 480 units * $450/unit = $216,000. The target profit is $60,000. So, the mark-up percentage = ($60,000 / $216,000) * 100 = 27.8%. However, to find the mark-up on a per unit basis, we consider the cost plus profit per unit. The selling price per unit must cover the variable cost ($450) plus a portion of the fixed costs and profit. The fixed costs are $168,000, and dividing this by the volume (480 units) gives $350 per unit for fixed costs. Adding the target profit gives a total required revenue of $228,000 ($168,000 fixed costs + $60,000 profit). Dividing by the volume gives a required revenue per unit of $475. The mark-up percentage on the variable cost is then calculated as [(Selling Price - Variable Cost) / Variable Cost] * 100. This calculation was incorrect in the initial step, leading to an incorrect conclusion. The correct approach involves determining the selling price per unit first, which was not directly provided or correctly derived from the given information. The error was in the calculation and interpretation of how the mark-up percentage is derived from the given data. Without the correct selling price per unit, the mark-up calculation as initially described does not apply directly to the options provided.

If the Target Profit Is $60 000 for an Annual