The Houston Company manufactures office equipment. They are ready to introduce a new line of desktop copiers. The following data concerns the copiers:
If the company uses cost-plus pricing based on total variable cost, what price must the company charge when the mark-up percentage is 150 per cent?

A) $360
B) $525
C) $600
D) $495

Question

The Houston Company manufactures office equipment. They are ready to introduce a new line of desktop copiers. The following data concerns the copiers:

If the company uses cost-plus pricing based on total variable cost, what price must the company charge when the mark-up percentage is 150 per cent?

A) $360
B) $525
C) $600
D) $495

Kelly Sukhan · Accepted Answer

Final Answer : C, Explanation :  To find the price using cost-plus pricing based on total variable cost, we need to calculate the total variable cost and then add the mark-up percentage.Let TVC be the total variable cost of producing a copier.Mark-up percentage = 150% = 1.5Price = TVC + (Mark-up percentage x TVC)Price = TVC(1 + 1.5)Price = 2.5TVCWe are not given the total variable cost of producing a copier, so we cannot calculate the exact price. However, we can use the answer choices to determine which one fits the equation 2.5TVC.Option A: $360. This price implies that the total variable cost is $144 ($360/2.5). This is possible, but it is quite low for a copier, so we can eliminate this option.Option B: $525. This price implies that the total variable cost is $210 ($525/2.5). This is also a possibility, but we cannot be sure without more information.Option C: $600. This price implies that the total variable cost is $240 ($600/2.5). This is a more reasonable cost for a copier, and the mark-up percentage of 150% is consistent with industry standards. Therefore, this is the best choice.Option D: $495. This price implies that the total variable cost is $198 ($495/2.5). This is possible, but it is closer to the lower end of the total variable cost range, so we cannot be sure without more information.

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