Clay Cookery produces ceramic cookware. Variable costs include clay and glazes for each crock and selling expenses.
Question:
Clay Cookery produces ceramic cookware. Variable costs include clay and glazes for each crock and selling expenses. Fixed costs include salaries for potters and the necessary equipment to produce the cookware. There are also fixed marketing and administrative costs. Clay Cookery’s owner has $80,000 invested in the business and desires an 8% return on his investment. Clay Cookery sells 3,650 crocks per year.
Product Costs
Variable..........................$4.50 per crock
Fixed..........................$78,000 per year
Selling, Marketing, and Administrative Costs
Variable..........................$3.00 per crock
Fixed..........................$15,000 per year
Using the absorption approach to cost-based pricing, what are the mark-up percentage and the selling price?
Mark-up percentage..................Selling price
a. 5.32%.......................................$34.73
b. 34.26%.....................................$34.73
c. 27.48%.....................................$32.98
d. 363%........................................$34.73
Step by Step Answer:
Cost Management Measuring, Monitoring and Motivating Performance
ISBN: 978-1119185697
3rd Canadian edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook