Alpine, Inc. sells a single product. The following information relates to the year just ended:Number of units sold: 40,000Variable cost per unit: $200Total fixed cost: $2,400,000Operating income: $3,800,000Required:A. Compute the company's selling price.B. Compute the percentage markup on total cost. Round your answer to two decimal places.C. Assume that Alpine desired to change its practice of computing a markup on total cost to a markup on variable cost. If the company wants to hold selling price constant, would the markup percentage increase or decrease? By how much?
What will be an ideal response?
A. The company's total cost is $10,400,000 [(40,000 units × $200) + $2,400,000], resulting in sales revenue of $14,200,000 ($10,400,000 + $3,800,000). The selling price is therefore $355 ($14,200,000 ÷ 40,000 units).
B. The total cost per unit is $260 [$200 + ($2,400,000 ÷ 40,000 units)], resulting in a $95 markup ($355 - $260). Each unit is thus marked up by 36.54% of total cost ($95 ÷ $260).
C. Because the base for computing the markup is smaller, the percentage markup must increase to produce the same sales price. The markup on variable cost must equal $155 to derive a $355 selling price ($355 - $200), or 77.5% ($155 ÷ $200). The net result is a hike of 40.96% (77.50% - 36.54%).
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