Question

A manufacturing company produces 80,000 units of product A at a total cost of $2 million. Total fixed costs are $1.2 million. If the company increases production by 25% and uses a 40% markup up the price per unit will be:

A. $31.50
B. $30.80
C. $51.80
D. $43.75

Answer 1

A 25% increase in production means 100,000 are produced. The total cost will be 1.2 million (fixed) PLUS 1.0 million variable cost. That means the total cost is 2.2 million for 100,000 units, or $22 each. With a 40% markup, the price should be $30.80.