SLR has set a target of 20% annual rate of return on investments. The fixed assets employed on one of their products, the X2, amount to £21,000,000. Working capital investment for the X2 is £4,000,000. Total operating costs to be incurred on the X2 for next year are forecast to be £8,000,000. SLR uses cost plus pricing.
What is the required percentage mark up on the costs for X2?
Solution:
The required percentage markup on the costs for X2:
Mark-up =
Selling price = Cost plus 20%
Total costs = 8,000,000 + 21,000,000 = 29,000,000
Selling price = 120 29,000,000 = 34,800,000
Mark-up = 16.67%
The required percentage markup on the costs for X2 = 16.67%
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