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?

Question

Wang

Business

3 September, 09:18

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?

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Answers (1)

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Kael Summers · Answer 1

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%