Magna Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $125...

Question:

Magna Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $125 per unit, of which $80 is product cost and $45 is selling and administrative expenses. In addition, the total cost of $125 is made up of $90 variable cost and $35 fixed cost. The desired profit is $55 per unit.

Determine the markup percentage on product cost.

Markup Percentage

The markup percentage refers to the ratio of the profit earned and the cost. The markup percentage is generally computed taking cost as the base, but the based for markup percentage can be different, it can be based on the variable cost, fixed cost, prime cost, overhead cost, sales, etc. As the base for the markup change, the ratio also changes. The ratio is then converted into percentage form to compute the markup percentage.

Answer and Explanation:


The markup percentage on product cost is 125%

Explanation

{eq}{ Markup \ percentage \ on \ product \ cost \ = ((Revenue - Product \ Cost) / Product \ Cost) * 100 } {/eq}

Here,

  • Revenue = Total cost + Desired cost => $125 + $55 = $180
  • Product cost = $80

So,

Markup percentage = (($180 - $80) / $80) * 100 = 125%


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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