Maui Inc. is deciding on the price for a new product. The company uses cost-plus
ID: 2444052 • Letter: M
Question
Maui Inc. is deciding on the price for a new product. The company uses cost-plus pricing based on target return on investment. The following information is available for the product:Invested capital $25 million
Target rate of return on investment 20%
Full cost of the product (per unit)
at the output level of 125,000 units $200
Full cost of the product (per unit)
at the output level of 80,000 units $250
A. Compute the prospective selling price, assuming the predicted output level is 125,000 units.
B. Compute markup as a percentage of full cost of the product, assuming the predicted output level is 80,000 units.
Explanation / Answer
invested capital $25 million Target rate of return on investment 20% rate of return on investment 25000000*20% $5,000,000 Full cost of the product per unit $200 out put level 125000 units sales 125000*200 $25,000,000 b.predicted out put level 80000 units units cost $250 Total cost 80000*250 $20,000,000 markup % 25000000-20000000/20000000*100 25%