Cost-Based Pricing and Markups with Variable Costs Compu Services provides compu
ID: 2448100 • Letter: C
Question
Cost-Based Pricing
and Markups with Variable Costs
Compu Services provides computerized inventory consulting. The office and computer expenses are $400,000 annually and are not assigned to specific jobs. The consulting hours available for the year total 20,000, and the average consulting hour has $20 of variable costs.
(a) If the company desires a profit of $140,000, what should it charge per hour?
$Answer
(b) What is the markup on variable costs if the desired profit is $120,000?
Answer %
(c) If the desired profit is $40,000, what is the markup on variable costs to cover (1) unassigned costs and (2) desired profit?
Markup to cover unassigned costs Answer %
Markup to cover desired profits Answer %
Explanation / Answer
(A) vARIABLE COST PER HOUR = $ 20
UNASSIGNED COST PER HOUR = 400000
TOTAL COST = 20 * 20000 + 400000 = 800000
PROFIT = 140000
TOTAL REVNUE TO BE COLLECTED = 800000 +140000 = 940000
PER HOUR CHARGE = 940000 / 20000 = $47
(B) IF DESIRED PROFIT = 160000
PER HOUR CHARGE = 800000 +1600000 / 20000 = 960000/ 20000 = 48
MARK UP ON VARIABLE COST = 48 - 20 = 28
% MARK UP = 28 *100 / 20 = 140%
(c) % MARK UP TO COVER DESIRED PROFIT = 8 *100 / 20 = 40%
% MARK UP TO COVER UNASSIGNED COST = 100% (140 - 40)