To achieve a target price of $518 per lawn mower, the markup percentage is 12.5
ID: 2533516 • Letter: T
Question
To achieve a target price of $518 per lawn mower, the markup percentage is 12.5 percent on total unit cost.
What is the fixed selling and administrative cost allocated to each unit of LawnMate’s top-of-the-line mower?
For each of the following cost bases, develop a cost-plus pricing formula that will result in a target price of $518 per mower. (Round your percentage values to 2 decimal places (i.e. .1234 should be entered as 12.34).)
The following data pertain to L awnMate Corporation’s top-of-the-line lawn mower.Explanation / Answer
Solution 1:
Target price = $518
Markup percentage on total cost = 12.50% on total unit cost
Total unit cost = $518*100/112.50 = $460.44
Allocated fixed selling and administrative cost = $460.44 - $301 - $57 - $57 = $45.44 per unit
Solution 2:
Variable manufacturing cost = $301
Markup on variable manufacturing cost to acheive target price = ($518 - $301) / $301 = 72.09%
Selling price = Variable manufacturing cost + 72.09% of variable manufacturing cost
Absorption manufacturing cost per unit = $301 + $57 = $358
Markup on absorption manufacturing cost to acheive target price = ($518 - $358) / $358 = 44.69%
Selling price = Absorption manufacturing cost + 44.69% of absorption manufacturing cost
Total variable cost = $301 + $57 = $358
Markup on total variable cost to acheive target price = ($518 - $358) / $358 = 44.69%
Selling price = Total variable cost + 44.69% of Total variable cost
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