Pauley Company needs to determine a markup for a new product.Pauley expects to sell 15,000 units and wants a target profit of $22 per unit.Additional information is as follows: $$\begin{array} { l r }
\text { Variable product cost per unit } & \$ 19 \
\text { Variable administrative cost per unit } & 11 \
\text { Total fixed overhead } & 13,500 \
\text { Total fixed administrative } & 21,000
\end{array}$$ Using the variable cost method,what markup percentage to variable cost should be used?
A)71%
B)76%
C)92%
D)81%
E)80%

Question

Pauley Company needs to determine a markup for a new product.Pauley expects to sell 15,000 units and wants a target profit of $22 per unit.Additional information is as follows: $$\begin{array} { l r } 
\text { Variable product cost per unit } & \$ 19 \
\text { Variable administrative cost per unit } & 11 \
\text { Total fixed overhead } & 13,500 \
\text { Total fixed administrative } & 21,000
\end{array}$$ Using the variable cost method,what markup percentage to variable cost should be used?
A)71%
B)76%
C)92%
D)81%
E)80%

Quizplus · Accepted Answer

To calculate the markup percentage using the variable cost method, first, we need to determine the total variable cost per unit, the total fixed costs, and the total target profit. Then, we calculate the total cost and the required sales to achieve the target profit, and finally, the markup percentage.1. Total variable cost per unit = Variable product cost per unit + Variable administrative cost per unit = $19 + $11 = $30.2. Total fixed costs = Total fixed overhead + Total fixed administrative = $13,500 + $21,000 = $34,500.3. Total target profit = Target profit per unit * Number of units = $22 * 15,000 = $330,000.4. Total cost = (Total variable cost per unit * Number of units) + Total fixed costs = ($30 * 15,000) + $34,500 = $484,500.5. Required sales to achieve target profit = Total cost + Total target profit = $484,500 + $330,000 = $814,500.6. Total variable cost = Total variable cost per unit * Number of units = $30 * 15,000 = $450,000.7. Markup percentage to variable cost = [(Required sales - Total variable cost) / Total variable cost] * 100 = [($814,500 - $450,000) / $450,000] * 100 = 81%.Therefore, the markup percentage to variable cost should be 81%.

Pauley Company Needs to Determine a Markup for a New