I sell pants that have $5 in variable costs (direct materials and labor). I have $100,000 in fixed costs, and I expect to sell 10,000 units. I sell the pants for $95/pair. What is my markup on cost?

The options are:

250%

84%

25%

None of the above

Answer:

None of the above

Markup = 533.33%

Explanation:

Markup percentage is defined as the amount of cost that one can add on to create the selling price. Markups are used to determine selling price by most retailers. It is the difference between what it costs to produce a product and the price for which it is eventually sold

Markup = (Selling price - Product cost) / Product cost * 100

Total cost = variable cost + fixed cost

Total cost = (5 * 10,000) + 100,000 = $150,000

Cost per unit = 150,000 : 10,000 = $15

Markup = (95-15) / 15*100

Markup = 533.33%

Mark-up (%) = 216.67%

Explanation:

The mark-up is the percentage of cost that is earned as profit. It is profit expressed as a proportion of cost.

Mark-up = Profit/cost * 100

Cost = Direct material cost + direct labour cost + Fixed cost

Cost per unit = 5 + (100,000/10,000)

=15 per unit.

The cost of a pair = 2*15 = 30.

The profit per pair = 95 - 30 = $65

Mark-up (%) = $65/30 * 100 = 216.67%