Hey Chegg, I could use your help for this queston. This question has been answer
ID: 2485701 • Letter: H
Question
Hey Chegg, I could use your help for this queston. This question has been answered in the past by Elizabeth Brown. I just want to be sure if the answers that are highlighted in bold are correct because I am confused. Can you show me how you arrive at the correct answer. Please show me your work (step by step). I need to answer this question correctly for my final assignment and I need to show the work. It would help me a lot if you can solve part a, b, and c and show the full work (step by step). Thank you so much for your help.
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.
Is the answer $66.25 or $66
(b) What is the markup on variable costs if the desired profit is $150,000? Round to the nearest whole percent.
Is the answer 120% or 244%
(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 -> Is the answer 100%
Markup to cover desired profits -> Is the answer 9.6% or 209%
Explanation / Answer
(a)
Office and Computer expenses of $625,000 are not assigned to specific jobs so such expenses are the fixed costs
Variable Cost for each consulting hour is $30.
Total hours in a year is 20,000
Desired Profit is $100,000
So the company should charge in such a way that it can cover the fixed cost and variable costs and the profit.
So cost is Fixed Costs+ Desired Profit = 625,000 +100,000 = 725,000
so cost for 1 hour is 725,000/20,000 = $36.25
and variable cost per hour is $30
So Cost to be charged is $36.25+ $30 = $66.25 rounded to the nearest cent as $66
(b)
Office and Computer expenses of $625,000 are not assigned to specific jobs so such expenses are the fixed costs
Variable Cost for each consulting hour is $30.
Total hours in a year is 20,000
Desired Profit is $150,000
So the company should charge in such a way that it can cover the fixed cost and variable costs and the profit.
So cost is Fixed Costs+ Desired Profit = 625,000 +150,000 = 775,000
so cost for 1 hour is 775,000/20,000 = $38.75
and variable cost per hour is $30
So the markup on variable cost is $38.75/$30 = 129.17 rounded to 129%
(c)
Office and Computer expenses of $625,000 are not assigned to specific jobs so such expenses are the fixed costs
Variable Cost for each consulting hour is $30.
Total hours in a year is 20,000
Desired Profit is $60,000
So the company should charge in such a way that it can cover the fixed cost and variable costs and the profit.
So cost is Fixed Costs+ Desired Profit = 625,000 +60,000 = 685,000
so cost for 1 hour is 775,000/20,000 = $34.25
and variable cost per hour is $30
So the markup to cover the unassigned cost is 104% 625,000/20000= 31.25/30 = 104.17%
and the markup to cover the desired profit is 10% 34.25-31.25 = 3/30*100 = 10%