Magpie Corporation uses the total cost concept of product pricing. Below is the

Question

Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 56,600 units of its sole product. Magpie desires a profit equal to a 21% rate of return on invested assets of $584,000.

The markup percentage on total cost for the company's product is

a.16.3%

b.13.1%

c.27.8%

d.21.3%

Fixed factory overhead cost $38,600 Fixed selling and administrative costs 8,000 Variable direct materials cost per unit 4.92 Variable direct labor cost per unit 1.88 Variable factory overhead cost per unit 1.13 Variable selling and administrative cost per unit 4.50

Explanation / Answer

Answer:-Total cost of product = Variable cost+ Fixed cost

={($4.92+$1.88+$1.13+$4.50)*56600 units} +$38600+$8000

=($12.43 per unit*56600 units)+$46600

=$703538+$46600 =$750138

Desired profit on invested assets =$584000*21% =$122640

The markup percentage on total cost for the company's product is:-

=($122640/$750138)*100 = 16.3%

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