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7 November, 16:27

Swan Company produces a product at a total cost of $43 per unit. Of this amount, $8 per unit is selling and administrative costs. The total variable cost is $30 per unit, and the desired profit is $20 per unit. Determine the markup percentage on product cost.

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  1. 7 November, 18:15
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    Answer: 80%

    Explanation:

    To answer this question we would need to divide the Required markup by the Unit product cost.

    In calculating the Required Markup we say,

    = Desired profit + fixed costs (selling and administrative costs)

    This is to ensure that the profit is still acquired after spending on fixed costs.

    = 20 + 8

    = $28 is the required markup.

    In calculating the unit product cost, we must remove the selling and administrative costs because they are not direct costs. That would lead us to,

    = 43 - 8

    = $35

    Now dividing the required markup by the unit product cost we get,

    = 28/35

    = 0.8

    = 80%

    80% is markup percentage on product cost.
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