Question

Periwinkle Manufacturing Company has the following budgeted costs for 10,000 units: Variable Costs Fixed CostsManufacturing $200,000 $75,000 Selling & Administrative 100,000 25,000Total $300,000 $100,000What is the initial selling price needed to obtain a target profit of $200,000 using the variable cost markup method?A. $30.B. $55.C. $60.D. $50.

Answer 1

C. $60

Step-by-step explanation:

Calculation to determine the initial selling price needed to obtain a target profit of $200,000 using the variable cost markup method

Using this formula

Contribution margin = (Selling price x Units produced) - Variable costs

Profit = Contribution - Fixed costs

Profit = $200,000

Fixed costs = $100,000

Variable costs = $300,000

$200,000 = Contribution -$100,000

Contribution=$200,000+$100,000

Contribution = $300,000

$300,000 = (Selling price x 10,000 units)-$300,000

Selling price=$300,000+$300,000/10,000 units

Selling price =$600,000 /10,000 units

Selling price = $60

Therefore the initial selling price that is needed to obtain a target profit of $200,000 using the variable cost markup method is $60