A company has $6.10 per unit in variable costs and $4.90 per unit in fixed cost at a volume of...

Question:

A company has $6.10 per unit in variable costs and $4.90 per unit in fixed cost at a volume of 50,000 units. if the company marks up the total cost by 0.52, what price should be charged if 57,000 units are expected to be sold?

Markup and Selling Price:

The selling price per unit for a given product is usually determined by taking into account the variable cost per unit, fixed cost per unit and the markup per unit. The variable cost per unit and the fixed cost per unit further consist of two components, namely, manufacturing cost per unit and selling & administrative expense per unit.

Answer and Explanation:

The calculated selling price per unit to be charged for 57,000 units is $10.92 per unit.

The total fixed cost is given by:

  • = Fixed cost per unit * corresponding number of units sold
  • = $4.90 * 50,000
  • = $245,000

The revised fixed cost per unit if 57,000 units are sold is given by:

  • = Total fixed cost / number of units sold
  • {eq}= \dfrac{\$245,000}{57,000} {/eq}
  • = $4.30 per unit

The selling price per unit for 57,000 units is given by:

  • = Revised fixed cost per unit + variable cost per unit + markup per unit
  • = $4.30 + $6.10 + $0.52
  • = $10.92 per unit

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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