PROBLEM - Patty Corporation has predicted the following costs for the year for based upon 100,000 units of product.
Manufacturing Selling & Administrative
Variable $1,600,000 $600,000
Fixed 2,400,000 1,200,000
Total $4,000,000 $1,800,000
A. Calculate the markup percentage on variable manufacturing costs to achieve a profit of $200,000. Calculate the unit selling price needed to obtain this target profit.
B. Calculate the markup percentage on manufacturing costs to obtain a profit of $200,000. Calculate the unit selling price needed to obtain this target profit.
C. Which one of the above (A or B) results in less risk for Patty Corporation? Explain your choice.