Hey Chegg, I have 2 answers for each question highlighted in bold. I just don\'t
ID: 2486173 • Letter: H
Question
Hey Chegg, I have 2 answers for each question highlighted in bold. I just don't know which answer is correct. I believe the correct answers are the first choices. Can you please tell me the correct answers and show me the work (step by step). Thank you.
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.
$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.
244% or 129%
(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 100% or 104.17%
Markup to cover desired profits 209% or 10%
Explanation / Answer
(a)
Required contribution = target profit + fixed cost = $625000 + $100000 = $725000
Required Contribution per hour = $725000 / 20000 = $36.25
Required revenue per hour = contribution per unit + variable cost per unit = $36.25 + $30 = $66.25
The company should charge $66 per hour
(b)
If desire profit is $150000
Required contribution = target profit + fixed cost = $625000 + $150000 = $775000
Required Contribution per hour = $775000 / 20000 = $38.75
Required revenue per hour = contribution per unit + variable cost per unit = $38.75 + $30 = $68.75
Markup on variable cost = $38.75 / $30 = 129%
(c)
(1)
Required contribution = unassigned cost = $625000
Required Contribution per hour = $625000 / 20000 = $31.25
Markup on variable cost = $31.25 / $30 = 104.17%
(2)
Required contribution = target profit + fixed cost = $625000 + $60000 = $685000
Required Contribution per hour = $685000 / 20000 = $34.25
Markup on variable cost = $34.25 / $30 = 114.17%
Mark up required to cover the profit of $60000
= mark up to cover the selling price for a desired profit of $60000 - mark up to cover the unassigned cost
= 114.17% - 104.17% = 10%