Question

Hordel Company needs to determine a markup for a new product. Hordel expects to sell 6,100 units and wants a target profit of $93 per unit. Additional information is as follows: Variable product cost per unit $ 80 Variable administrative cost per unit 35 Total fixed overhead 53,000 Total fixed administrative 11,050 Using the variable cost method, what markup percentage to variable cost should be used

Answer 1

See below

Step-by-step explanation:

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

= (6,100 × $80 per unit) + (6,100 × $35)

= $488,000 + $213,500

= $701,500

Total fixed cost = Total fixed overhead + Total fixed administrative cost

= $53,000 + $11,050

= $64,050

Total fixed cost per unit = $64,050 ÷ 6,100 = $10.5

Total cost = Total variable cost + Total fixed cost

= $701,500 + $64,050

= $765,550

Target profit = 6,100 × $93 = $567,300

Desired selling price = Total cost + Target profit

= $765,550 + $567,300

= $1,332,850

Desired selling price per unit = $1,332,850 ÷ 6,100 = $218.5

Therefore,

Markup percentage on variable cost

= [(Desired selling price per unit - Variable cost per unit) ÷ Variable cost per unit] × Variable cost per unit

= [($218.5 - 115) ÷ (115)] × 115

= 103.5%