Variable cost: Direct Material = $5.00 per unit; Direct labor = 1.50; Factory ov

Question

Variable cost: Direct Material = $5.00 per unit; Direct labor = 1.50; Factory overhead = .75; Selling and administrative expenses = 2.00; Total = $9.25 per unit. Fixed costs: Factory overhead = $80000; Selling and administrative expenses = $40000. North Glen Co. desires a profit equal to a 20% rate of return on assets. $1000000 of assets are devoted to producing Product Z, and 50000 units are expected to be produced and sold. Question: The markup percentage, using the total cost concept, is ????%.

Explanation / Answer

The problem is answered as below given the assets used are = $1000000 Return on Assets = 20% Net profit = $1000000 x 0.20 = $ 200000 Total Marginal cost on the 50000 units = $9.25 per unit (given) x 50000 units = $462500 Total costs (marginal and fixed ) = $462500+$80000+$40000 = $582500 Hence, Mark up Percentage as per Total cost Concept = (sales -total costs)/costs => Profit/costs = 200000/582500 = 0.34335 or 34.33% (rounded to 2 decimals) Therefore mark up percentage using the total cost concept = 34.33%

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