Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000. The markup percentage for the sale of the company's product is:
A) 14%
B) 5.6%
C) 45.71%
D) 11.2%

Question

Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000.  The markup percentage for the sale of the company's product is:
A) 14% 
B) 5.6% 
C) 45.71% 
D) 11.2%

Quizplus · Accepted Answer

To calculate the markup percentage, we need to first calculate the total cost to produce 35,000 units of the product, and then add the desired profit.

Total cost = Variable cost per unit x Number of units produced 
= $27 x 35,000 
= $945,000

Desired profit = Rate of return on invested assets x Invested assets 
= 11.2% x $350,000 
= $39,200

Total price = Total cost + Desired profit 
= $945,000 + $39,200 
= $984,200

Markup percentage = (Total price - Total cost) / Total cost x 100% 
= ($984,200 - $945,000) / $945,000 x 100% 
= $39,200 / $945,000 x 100% 
= 4.15% x 100% 
= 45.71%

Therefore, the markup percentage for the sale of the company's product is 45.71%, making option C the correct choice.

Dotterel Corporation Uses the Variable Cost Concept of Product Pricing