A company has $7.70 per unit in variable cost and $4.90 per unit in fixed costs at a volume of $50,000 units. If the company marks up total cost by 0.59, what price should be charged if 62,000 units are expected to be sold?
Markup is the difference between the price of a product and the total cost, expressed as a percentage of total cost. In a perfectly competitive market, the markup of an individual firm is zero.
Answer and Explanation:
We first compute the average total cost:
- average total cost = average variable cost + average fixed cost
- average total cost = 7.7 + (4.9 * 50,000) / 62,000
- average total cost = 7.7 + 3.95
- average total cost = 11.65
Since there is a markup above total cost of 0.59, the price charged will be:
- 11.65 * (1 + 0.59) = 18.5235
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from Principles of Marketing: Help and ReviewChapter 12 / Lesson 22