The Swan Company produces its 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 variable cost.
A) 100%
B) 110%
C) 80%
D) 46.5%

Question

Quizplus · Accepted Answer

Markup percentage on variable cost = (Desired profit per unit / Total variable cost per unit) * 100%
= ($20 / $30) * 100%
= 66.67%
However, the total cost per unit also includes selling and administrative costs, which is $8 per unit. So, the markup percentage on total cost would be:
Markup percentage on total cost = Markup percentage on variable cost / (1 - Selling and administrative cost as a percentage of total cost)
= 66.67% / (1 - 8/43)
= 110.22% (rounded to 110%)
Therefore, the markup percentage on variable cost is 66.67%, but the markup percentage on total cost is 110%. The best choice is B.

The Swan Company Produces Its Product at a Total Cost