Yakking Co. manufactures mobile cellular equipment and develops a price for the

Question

Yakking Co. manufactures mobile cellular equipment and develops a price for the product by using the variable cost concept. Yakking incurs variable costs of $1,900,000 in the production of 100,000 units while fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.

a. Compute a markup percentage based on variable cost. Round your answer to one decimal place.

27.5%

b. Determine a selling price. Round your answer to two decimal places.

Explanation / Answer

profit = .1*4725000 = 472500

profit= sale-vc-fc

472500 = sale -1900000-50000

sale = 1900000+50000+472500

= $2422500

mark up % = (2422500-1900000)/1900000

= 522500/1900000

= .275

= 27.5%

selling price = 2422500/100000 = $24.23

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