Question 3.9.5: This example demonstrates how the profit mark-up can be dete...

CIMA Official Learning System Fundamentals of Management Accounting

This example demonstrates how the profit mark-up can be determined as a percentage of the total budgeted cost for a period.
The following data relate to a company which produces a range of products.

Capital invested in company                                   £800,000
Required return on investment each period         15%
Budgeted total cost for next period                          £1,500,000

One of the company’s products, R, incurs a total cost of £35 per unit.
Calculate the cost-plus selling price of one unit of product R

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Required profit in period = £800,000 × 15% = £120,000
Profit as a percentage of budgeted total cost = (£120,000/£1,500,000) × 100%
= 8%
This percentage is applied to calculate the mark up for all products produced.

Profit mark-up for one unit of product R = £35 × 8% = £2.80
Selling price for one unit of product R = £35 × £2.80 = £37.80

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