Question

Set forth the basic markup pricing technique.

Answer 1

Mark up pricing is adding a certain percentage of a markup to the production cost to set the selling price.

To determine the markup price, first, the companies must have to determine the cost of production and amount of profit they want to earn over and above it.

Unit cost= Variable cost + (Fixed cost/ unit sales)

Once the unit cost is determined and set the desired return on sale, the company can set markup price

Markup price= Unit cost/1-desired return on sales

Example-

A laptop company: FC=600000

Variable cost per unit=40

Expected unit sales= 60000

Unit cost=40+(600000/60000)=50

the manufacturer decided to add a 50% markup on sale

Markup price=50/1-0.5=100

Therefore the laptop company can charge $100 to earn $50 profit.