Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. Fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.

a. 27.5%

b. $24.22

Explanation:

a. For computing the markup percentage, first we have to determine the sales which is shown below:

Profit = Sales - variable cost - fixed cost

$4,725,000 * 10% = Sales - $1,900,000 - $50,000

$472,500 = Sales - $1,950,000

So, sales = $2,422,500

Now the markup percentage is

= (Sales - variable cost) : (Variable cost)

= ($2,422,500 - $1,900,000) : ($1,900,000)

= 27.5%

b. Now the selling price is

= Sales : number of units produced

= $2,422,500 : 100,000

= $24.22