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Markups, discounts and profit margins: Detailed calculations

1. A company has a total cost of $50.00 per unit at a volume of 100,000 units. The variable cost per unit is $20.00. What would the price be if the company expected a volume of 120,000 units and used a markup of 50%?
a) $75.00
b) $62.50
c) There is not enough information in the problem to answer
d) $67.50

2. Umbrella Company has a capacity of 40,000 units per year and is currently selling all 40,000 for $400 each. Buerhle Company has approached Contreras about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Contreras $20 per unit when compared to the normal packaging cost. Normally, Contreras has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Contreras were to accept this special order?
a. Profits would decrease $200,000
b. Profits would decrease $160,000
c. Profits would increase $60,000
d. Profits would increase more than $60,000

3. The Radek Company uses cost-plus pricing with a 30% mark-up. The company is currently selling 80,000 units at $65 per unit. Each unit has a variable cost of $47. In addition, the company incurs $240,000 in fixed costs annually. If demand falls to 40,000 units and the company wants to continue to charge the same price what profit margin percent will the company earn?
a. 22.6%
b 26.2%
c. 57.5%
d. 30%

4. A Shavon company has total fixed costs of $6,000,000 and total variable cost of $3,000,000 at a volume level of 300,000 units. What price would be charged if the company used cost plus pricing and a markup of 25%?
a. $30.00
b. $37.50
c. $25.00
d. $12.50

Solution Preview

1. d
At Q = 100,000:
TC = 100,000*50 = 5,000,000
TVC = 100,000*20 = 2,000,000
TFC = 5,000,000-2,000,000 = 3,000,000

At Q = 120,000:
TVC = 120,000*20 = 2,400,000
TFC = 3,000,000
TC = 2,400,000+3,000,000 = 5,400,000
ATC = 5,400,000/120,000 = $45
With a 50% markup, P = 150%($45) = $67.50

2. b
Currently:
TR = PQ = 400*40,000 = 16,000,000
TFC = ...

Solution Summary

This solution shows how to make detailed calculations involving markups, cost-plus pricing, profit margins, and discounts for bulk orders. There are 4 questions and 4 step-by-step solutions.

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