Cost-Based Pricing and Markups with Variable Costs Compu Services provides compu
ID: 2449470 • Letter: C
Question
Cost-Based Pricing and Markups with Variable Costs
Compu Services provides computerized inventory consulting. The office and computer expenses are $600,000 annually and are not assigned to specific jobs. The consulting hours are available for the year total 20,000, and the average consulting hours has $30 variable costs.
(a) If the company desires a profit of $160,000 what should it charge per hour?
(b) What is the markup on variable costs if the desired profit is $240,000
(c) If the desired profit is $60,000, what is the markup on variable costs to cover
(1) unassigned costs and
(2) desired profit?
Explanation / Answer
(a)
Calculation of Charge per hour:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 160,000
Total Required Sales Revenue
$ 1,360,000
Total Annual hours
20000
Charge Per hour = 1360000 /20000
$ 68
(b)
Calculation of Markup on variable cost:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 240,000
Total Required Sales Revenue
$ 1,440,000
Total Annual hours
20000
Charge Per hour = 1440000 /20000
$ 72
Less: Variable cost per hour
(30)
Markup per hour
$ 42
Markup on Variable cost % = 42/30
140%
(c) (1)
Calculation of Markup on variable costs to cover unassigned costs:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Total Required Sales Revenue
$ 1,200,000
Total Annual hours
20000
Charge Per hour = 1260000 /20000
$ 60
Less: Variable cost per hour
$ (30)
Markup per hour
$ 30
Markup on Variable cost % = 30/30
100%
(c) (2)
Calculation of Markup on variable costs to cover desired profit:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 60,000
Total Required Sales Revenue
$ 1,260,000
Total Annual hours
20000
Charge Per hour = 1260000 /20000
$ 63
Less: Variable cost per hour
$ (30)
Markup per hour
$ 33
Markup on Variable cost % = 33/30
110%
(a)
Calculation of Charge per hour:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 160,000
Total Required Sales Revenue
$ 1,360,000
Total Annual hours
20000
Charge Per hour = 1360000 /20000
$ 68
(b)
Calculation of Markup on variable cost:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 240,000
Total Required Sales Revenue
$ 1,440,000
Total Annual hours
20000
Charge Per hour = 1440000 /20000
$ 72
Less: Variable cost per hour
(30)
Markup per hour
$ 42
Markup on Variable cost % = 42/30
140%
(c) (1)
Calculation of Markup on variable costs to cover unassigned costs:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Total Required Sales Revenue
$ 1,200,000
Total Annual hours
20000
Charge Per hour = 1260000 /20000
$ 60
Less: Variable cost per hour
$ (30)
Markup per hour
$ 30
Markup on Variable cost % = 30/30
100%
(c) (2)
Calculation of Markup on variable costs to cover desired profit:
Annual office and computer expenses
$ 600,000
Add: Total Annual variable cost =20000 Hours *$30
$ 600,000
Add: Desired Annual Profits
$ 60,000
Total Required Sales Revenue
$ 1,260,000
Total Annual hours
20000
Charge Per hour = 1260000 /20000
$ 63
Less: Variable cost per hour
$ (30)
Markup per hour
$ 33
Markup on Variable cost % = 33/30
110%