Assume that Stuart Cellars’ annual fixed costs are $1,000,000. With an average r

Question

Assume that Stuart Cellars’ annual fixed costs are $1,000,000. With an average retail price of $28 per bottle of wine and assuming estimated variable costs of $11.50, calculate the break-even volume.

2. A retailer purchases a can of soup for $.24 and sells it for $.36. Calculate the mark-up as a percentage of cost and as a percentage of selling price.

3. If Macy’s pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95, what is Macy’s mark-up as a percentage of cost? As a percentage of selling price?

Explanation / Answer

1 Assume that Stuart Cellars’ annual fixed costs are $1,000,000. With an average retail price of $28 per bottle of wine and assuming estimated variable costs of $11.50, calculate the break-even volume.

Break-even volume = Fixed Cost/(Selling Price - Variable cost)

Break-even volume = 1000000/(28-11.50)

Break-even volume = 60606 Units

2. A retailer purchases a can of soup for $.24 and sells it for $.36. Calculate the mark-up as a percentage of cost and as a percentage of selling price.

Mark-up as a percentage of cost = (sell price - cost)/ Cost

Mark-up as a percentage of cost = (0.36-0.24)/0.24

Mark-up as a percentage of cost = 50%

Mark-up as a percentage of selling price = (sell price - cost)/ Cost

Mark-up as a percentage of selling price = (0.36-0.24)/0.36

Mark-up as a percentage of selling price = 33.33%

3. If Macy’s pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95, what is Macy’s mark-up as a percentage of cost? As a percentage of selling price?

Mark-up as a percentage of cost = (sell price - cost)/ Cost

Mark-up as a percentage of cost = (25.95-16.50)/16.50

Mark-up as a percentage of cost = 57.27%

Mark-up as a percentage of selling price = (sell price - cost)/ Cost

Mark-up as a percentage of selling price = (25.95-16.50)/25.95

Mark-up as a percentage of selling price = 36.42%

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