Question

Pauley Company needs to determine a markup for a new product. Pauley expects to sell 25,000 units and wants target profit of $20 per unit. Additional information is as follows:
Variable product cost per unit 17
Variable administrative cost per unit 12
Total fixed overhead 23,500
Total fixed administrative 42,000
Using the variable cost method, what markup percentage to variable cost should be used?

Answer 1

Answer:

69 %

Explanation:

Mark up is Gross Profit expressed as a percentage of Total Costs.

When using variable costing, only the variable costs are used to determine the Product Cost.

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

                      = $17.00 + $12.00

                      = $29.00

Therefore,

Mark up = Profit ÷ Total Variable Cost

              = $20.00 ÷ $29.00

              = 0.69 or 69 %