SawTown Tools uses cost-plus pricing with a 30% mark-up.The company is currently selling 80,000 units at $65 per unit.Each unit has a variable cost of $47.In addition, the company incurs $240,000 in fixed costs annually.If demand falls to 40,000 units and the company wants to continue to charge the same price per unit, what markup percentage is the company using?
A)22.6%
B)26.2%
C)36.1%
D)30.1%

Question

Quizplus · Accepted Answer

The markup percentage is calculated based on the cost per unit. The cost per unit includes both variable and fixed costs. At 40,000 units, the fixed cost per unit is $240,000 / 40,000 = $6. The total cost per unit is $47 (variable) + $6 (fixed) = $53. The markup is ($65 - $53) / $53 = 22.6%.

SawTown Tools Uses Cost-Plus Pricing with a 30% Mark-Up