A company has $50 per unit in variable costs and $1,200,000 per year in fixed costs. Demand is...

Question:

A company has $50 per unit in variable costs and $1,200,000 per year in fixed costs. Demand is estimated to be 100,000 units annually.

What is the price if a markup of 40% on total cost is used to determine the price?

Markup

Markup is a profit added by a bussiness (whether trading or manufacturing of goods) to the total cost of its goods, this represents the profit which that organization earns, it os either shown as % of cost or as a percentage of sales.

Answer and Explanation:

Total cost = variable cost per unit + fixed cost per unit = $50 + $1200000/100000 = $62

Price = total cost + markup = total cost * (1+ markup%) = $62 * 1.40 = $86.8


Learn more about this topic:

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How to Calculate Markup: Definition & Formula

from Principles of Marketing: Help and Review

Chapter 12 / Lesson 22
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