Retailers and wholesalers use traditional markups that they feel will yield a re
ID: 469945 • Letter: R
Question
Retailers and wholesalers use traditional markups that they feel will yield a reasonable rate of profit. Answer the following set of problems.
The usual retail price of an item is $100. The manufacturer’s cost to produce the item is $40. Retailers take a 50 percent markup and wholesalers take a 10 percent markup (markup is calculated on selling price, unless otherwise is indicated).
What is the retailer’s markup in dollars?______________________________
What is the wholesale price?_______________________________________
What is the manufacturer’s price?___________________________________
What is the manufacturer’s markup percentage?_______________________
The XYZ Manufacturing Company is trying to set its price on a product that will sell at retail for $80.
For retailers to earn a markup of 25 percent, what should the wholesale price be? ________________________
For the wholesalers to earn a markup of 10 percent, what should the manufacturer’s price be? _________________________
Complete the following table by filling in the blanks.
Quantity Produced
0
1
2
3
4
Total cost
______
______
______
______
$400
Total fixed cost
$120
______
_______
______
______
Total variable cost
_____
______
$140
______
______
Average cost
n/a
______
______
$110
______
Average fixed cost
n/a
______
______
______
______
Average variable cost
n/a
$70
______
______
______
Suppose you were considering going into the car-wash business and investing in a new kind of car-washing unit which is more mechanized than the usual ones—but also has higher fixed costs.Calculate the break-even point in dollars and units if the usual price of $4 per car were charged.The variable cost per car is estimated at $2. The total fixed cost per year (including depreciation, interest, taxes, fixed labor costs, and other fixed costs) is estimated at $320,000.
Break-even Point in $ __________________________
Break-even Point in units________________________
Calculate the break-even points (in $ and units) if the retail price of car wash drops to $3.50 per car due to competition in the future.
Break-even point in $ ___________________________
Break-even point in units ________________________
Should you go into the car-wash business in any of the above situations? Explain.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Quantity Produced
0
1
2
3
4
Total cost
______
______
______
______
$400
Total fixed cost
$120
______
_______
______
______
Total variable cost
_____
______
$140
______
______
Average cost
n/a
______
______
$110
______
Average fixed cost
n/a
______
______
______
______
Average variable cost
n/a
$70
______
______
______
Explanation / Answer
What is the retailer’s markup in dollars?____$50__________________________
What is the wholesale price?_______________$50________________________
What is the manufacturer’s price?______________$45_____________________
What is the manufacturer’s markup percentage?________0.9%_______________
The XYZ Manufacturing Company is trying to set its price on a product that will sell at retail for $80.
For retailers to earn a markup of 25 percent, what should the wholesale price be? ___________$60_____________
For the wholesalers to earn a markup of 10 percent, what should the manufacturer’s price be? __________$52_______________
Quantity Produced
0
1
2
3
4
Total cost
___$0___
_$100_____
_$200_____
_$300_____
$400
Total fixed cost
$120
_$240_____
_$480______
_$960_____
_$1920_____
Total variable cost
__$35___
_$70_____
$140
__$280____
_$560_____
Average cost
n/a
___$27___
__$55____
$110
_$220_____
Average fixed cost
n/a
__$93____
__$186____
_$372_____
_$744_____
Average variable cost
n/a
$70
___$70___
_$70_____
_$70_____
Suppose you were considering going into the car-wash business and investing in a new kind of car-washing unit which is more mechanized than the usual ones—but also has higher fixed costs.Calculate the break-even point in dollars and units if the usual price of $4 per car were charged.The variable cost per car is estimated at $2. The total fixed cost per year (including depreciation, interest, taxes, fixed labor costs, and other fixed costs) is estimated at $320,000.
Break-even Point in $ _________$2/car_________________
Break-even Point in units________2 Units per car________________
Calculate the break-even points (in $ and units) if the retail price of car wash drops to $3.50 per car due to competition in the future.
Break-even point in $ _________1.75__________________
Break-even point in units ________1.75 Units________________
Should you go into the car-wash business in any of the above situations? Explain.
Yes, absolutely, since making the price of each car wash at $4 earns you a $2 profit then it is a nice deal to start with keeping the price cap at $4 per wash instead of $3.50 per wash.
Quantity Produced
0
1
2
3
4
Total cost
___$0___
_$100_____
_$200_____
_$300_____
$400
Total fixed cost
$120
_$240_____
_$480______
_$960_____
_$1920_____
Total variable cost
__$35___
_$70_____
$140
__$280____
_$560_____
Average cost
n/a
___$27___
__$55____
$110
_$220_____
Average fixed cost
n/a
__$93____
__$186____
_$372_____
_$744_____
Average variable cost
n/a
$70
___$70___
_$70_____
_$70_____
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