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25 September, 15:35

Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. Fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.

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  1. 25 September, 18:33
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    a. 27.5%

    b. $24.22

    Explanation:

    a. For computing the markup percentage, first we have to determine the sales which is shown below:

    Profit = Sales - variable cost - fixed cost

    $4,725,000 * 10% = Sales - $1,900,000 - $50,000

    $472,500 = Sales - $1,950,000

    So, sales = $2,422,500

    Now the markup percentage is

    = (Sales - variable cost) : (Variable cost)

    = ($2,422,500 - $1,900,000) : ($1,900,000)

    = 27.5%

    b. Now the selling price is

    = Sales : number of units produced

    = $2,422,500 : 100,000

    = $24.22
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