Question

Hordel Company needs to determine a markup for a new product. Hordel expects to sell 5,000 units and wants a target profit of $82 per unit. Additional information is as follows: Variable product cost per unit $ 79 Variable administrative cost per unit 21 Total fixed overhead 42,000 Total fixed administrative 31,000 Using the variable cost method, what markup percentage to variable cost should be used?

Answer 1

Answer:

96.60%

Explanation:

Total Variable Cost = Variable product cost + Variable administrative cost per unit

                                = (5,000 × $79 per unit) + (5,000 × $21 per unit)

                                = $395,000 + $105,000

                                = $500,000

Total Fixed Cost = Total fixed overhead + Total fixed Administrative Cost

                            = $42,000 + $31,000

                            = $73,000

Total fixed cost per unit = $73,000 ÷ 5,000

                                        = 14.6

Total Cost = Total Variable Cost + Total Fixed Cost

                 = $500,000 + $73,000

                 = $573,000

Target profit = 5,000 × $82

                     = $410,000

Desired Selling Price = Total cost + Target profit

                                   = $573,000 + $410,000

                                   = $983,000

Desired Selling Price per unit = $983,000 ÷ 5,000

                                                 = $196.6

Therefore,

Mark up percentage on Variable Cost :

= (Desired Selling Price per unit – Variable Cost per unit) ÷ (Variable Cost per unit) × 100

= [(196.60 – 100) ÷  (100)] × 100

= 96.60%