Retailers and wholesalers use traditional markups that they feel will yield a reasonable rate of profit. Answer the following set of problems.
1. The usual retail price of an item is $100. The manufacturer's cost to produce the item is $40. Retailers take a 50 percent markup and wholesalers take a 10 percent markup (markup is calculated on selling price, unless otherwise is indicated).
a. What is the retailer's markup in dollars?______________________________
b. What is the wholesale price?_______________________________________
c. What is the manufacturer's price?___________________________________
d. What is the manufacturer's markup percentage?_______________________
2. The XYZ Manufacturing Company is trying to set its price on a product that will sell at retail for $80.
a. For retailers to earn a markup of 25 percent, what should the wholesale price be? ________________________
b. For the wholesalers to earn a markup of 10 percent, what should the manufacturer's price be? _________________________
3. Complete the following table by filling in the blanks.
|
|
Quantity Produced
|
|
|
0
|
1
|
2
|
3
|
4
|
|
Total cost
|
______
|
______
|
______
|
______
|
$400
|
|
Total fixed cost
|
$120
|
______
|
_______
|
______
|
______
|
|
Total variable cost
|
_____
|
______
|
$140
|
______
|
______
|
|
Average cost
|
n/a
|
______
|
______
|
$110
|
______
|
|
Average fixed cost
|
n/a
|
______
|
______
|
______
|
______
|
|
Average variable cost
|
n/a
|
$70
|
______
|
______
|
______
|
4. Suppose you were considering going into the car-wash business and investing in a new kind of car-washing unit which is more mechanized than the usual ones-but also has higher fixed costs. Calculate the break-even point in dollars and units if the usual price of $4 per car were charged. The variable cost per car is estimated at $2. The total fixed cost per year (including depreciation, interest, taxes, fixed labor costs, and other fixed costs) is estimated at $320,000.
a. Break-even Point in $ __________________________
b. Break-even Point in units________________________
c. Calculate the break-even points (in $ and units) if the retail price of car wash drops to $3.50 per car due to competition in the future.
d. Break-even point in $ ___________________________
e. Break-even point in units ________________________
f. Should you go into the car-wash business in any of the above situations? Explain.