Question

Can someone please answer this and please type the answers for these.

1. Assume that TexCo is a widget manufacturer. It costs TexCo $62 (parts and labor) to manufacture each unit, and it incurs fixed overhead of $2.5 million per year. If TexCo prices the widgets using a 40% markup on cost, how many widgets must it sell annually in order to break even? Show your work?

2. Based on your answer to #1, if TexCo actually sells 150,000 units this year, what will its net profit be? Show your work.

3. Flip’s Flops, a small retailer located in South Padre Island, purchases “Sea Turtle” brand flip flops at a cost of $12 per pair. If the manager prices the flip flops using a 60% “markup on price”, what is the selling price to consumers?

4. Assume that it is nearing the end of the summer, and the Flip’s Flops still has a large number of “Sea Turtle” flip flops in the store. If the manager marks the price of the flip flops down by 40%, what is the new selling price of this item?

5. Peaks is a snowboard manufacturer, and is working on a new, high-end board to sell to retail stores.  These boards will have a suggested retail price of $749. If Peaks knows that these retailers price their boards using a 50% "markup on retail", and Peaks wants to be able to achieve a 60% "markup on cost", what is the most that it can spend, per unit, to produce this board?

Answer 1

1.

Variable cost per unit (v) = $62
Annual fixed cost (F) = $2500,000

Selling price (s) = Cost + Cost * % markup on cost = 62 + 62*40% = $86.8

Break-even unit = F / (s - v) = 2500,000 / (86.8 - 62) = 100,807 units (rounded up)

2.

Actual volume = 150,000

So, net profit = 150000*(s - v) - F = 150000*(86.8 - 62) - 2500000 = $1,220,000

3.

Unit variable cost (v) = $12

Selling price = Unit variable cost / (1 - Markup %) = 12 / (1 - 0.60) = $30

4.

Unit variable cost (v) = $12

Markup % is now 40% or 0.40

Selling price = Unit variable cost / (1 - Markup %) = 12 / (1 - 0.40) = $20

5.

Retail price = $749

Markup % on retail price = 50%

Retail price = Wholesale price / (1 - Markup % on retail price) or, Wholesale price = 749*(1 - 0.5) = $374.5

Markup % on cost = 60%

Wholesale price (s) = Unit cost * (1 + % Markup on cost) or, Unit cost = 374.5 / (1 + 0.6) = $234

So, the company can at most keep the unit cost equal to $234.