The chief engineer at Future Tech has proposed production of a portable electron

Question

The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 25 percent markup above its full cost. Management estimates that the fixed costs per year will be $192,000, and the variable cost of the storage device will be $15 per unit. The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 25 percent markup above its full cost. Management estimates that the fixed costs per year will be $192,000, and the variable cost of the storage device will be $15 per unit. Exercise 8-10 The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 25 percent markup above its full cost. Management estimates that the fixed costs per year will be $192,000, and the variable cost of the storage device will be $15 per unit. The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 25 percent markup above its full cost. Management estimates that the fixed costs per year will be $192,000, and the variable cost of the storage device will be $15 per unit. Assuming production and sales of 60,000 units,what is the full cost of a storage device, and what is the price with a 25 percent markup? Assume that the quantity demanded at the price calculated in part a is only 40,000 units and only 40,000 units are produced. What is the full cost of the storage device, and what is the price with a 25 percent markup? Compare the selling prices computed in parts a and b; does the selling price increase, decrease, or stay the same when the number of units produced and sold decreases?

Explanation / Answer

Selling price Increases when Units produced and sold are decreased.

a)Full cost of a storage device 192000 + 15 x 60000 1092000 Mark up 25% 273000 Price with 25% markup 1365000 b)Full Cost at 40000 units 792000 192000 + 15 x 40000 Markup 25% 198000 Price with 25% Mark up 990000 Sales Price in Part A (1365000/60000) 22.75 Sales Price in Part B (990000/40000) 24.75

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