Dexter, Inc., is planning to introduce a new product line. Current plans call for the production and sale of 1,000 units, with estimated production costs as follows:
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Variable costs:
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Manufacturing
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$450,000
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Selling and administrative
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100,000
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Total variable costs
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$ 550,000
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Fixed costs:
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Manufacturing
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$300,000
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Selling and administrative
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180,000
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Total fixed costs
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480,000
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Total costs
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$1,030,000
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The average amount of capital invested in the product line is $900,000 and Dexter's target return on investment is 18%.
a. Compute the markup percentage if the company uses cost-plus pricing based on total cost. Round to the nearest tenth of a percent (for example, 23.6%). Show calculations.
b. Compute the projected selling price using the markup you computed in part (a). Show calculations.