Cost-Based Pricing and Markups with Variable Costs Compu Services provides compu

Question

Cost-Based Pricing and Markups with Variable Costs Compu Services provides computerized inventory consulting. The office and computer expenses are $625,000 annually and are not assigned to specific jobs. The consulting hours available for the year total 20,000, and the average consulting hour has $30 of variable costs. (a) If the company desires a profit of $100,000, what should it charge per hour? Round to the nearest cent. $AnswerCorrect (b) What is the markup on variable costs if the desired profit is $150,000? Round to the nearest whole percent. AnswerIncorrect % (c) If the desired profit is $60,000, what is the markup on variable costs to cover (1) unassigned costs and (2) desired profit? Round to the nearest whole percent. Markup to cover unassigned costs AnswerIncorrect % Markup to cover desired profits AnswerIncorrect %

Explanation / Answer

a. Total Cont = No of Hrs*Cont per hr

Reqd Profit = Total Contribution - Fixed costs = 20,000*Cont per hr – 625,000 = 100,000

So Cont per hr = (100,000 + 625,000)/20,000 = 725,000/20,000 = $36.25

Cont per Hr = Charges per Hr – Var cost per her

So Charges per hr = Cont per Hr + Var cost per hr = 36.25+ 30 = $66.25

So for Profit of $100,000, Charge per hr should be $66.25

(b)

Markup %age = (Desired profit + Fixed cost) / Total Variable cost = (150,000+625,000)/20000*30)

= 130%

c. Unassigned costs = $625,000

Available Hrs = 20,000

So Unassigned cost per hr = $625,000/20,000 = $31.25

Var cost per Hr = $30

Markup to cover unassigned costs = Unassigned cost per hr / Var cost per hr = $31.25/$30 = 1 .04or

104%

Markup on Var cost to cover desired profits = (Desired profit + Unassigned cost) / Var costs =

(60,000 + 625,000)/(20,000*30) = 114%

Unassigned costs = $400,000

Available Hrs = 20,000

So Unassigned cost per hr = $400,000/20,000 = $20

Var cost per Hr = $20

Markup to cover unassigned costs = Unassigned cost per hr / Var cost per hr = $20/$20 = 1 or

100%

Answer 100%

Markup on Var cost to cover desired profits = (Desired profit + Unassigned cost) / Var costs =

(160,000 + 400,000)/(20,000*20) = 140%

Answer 140%

Available Hrs = 20,000

So Unassigned cost per hr = $400,000/20,000 = $20

Var cost per Hr = $20

Markup to cover unassigned costs = Unassigned cost per hr / Var cost per hr = $20/$20 = 1 or

100%

Answer 100%

Markup on Var cost to cover desired profits = (Desired profit + Unassigned cost) / Var costs =

(160,000 + 400,000)/(20,000*20) = 140%

Answer 140%

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