Answer the questions based on this information:

Selling Price = $14.95

Cost = $8.70

1. What is the markup in dollars?

1. What is the markup on the Selling Price (in percent)?

1. What is the markup on the Cost (in percent)?

1. If the cost of a product was $16.00 and the markup percentage was 35%, what would be the selling price?

If a retailer carries a wide variety products, mark-up pricing is an easy way to determine the price for a large number of diverse products.

1. Give an example of a retailer that might use mark-up pricing.

1. Why does this retailer use mark-up pricing?

TARGET RETURN PRICING: Notes

What price would you need to charge for a product if:

• you borrowed money to start a business ($100,000)
• you had to pay back the money with a particular interest rate (15%)
• you had a rough idea of how many units you could sell (50,000)
• you know what your costs per unit are to produce the product ($3)

With this information, you will be determining a 'target return price'.

Target Return Price =

Unit Cost + [(Desired Return/Est. Quantity) x Capital Investment)

$3 + [(.5/ 50,000) x $100,000] = $3.30

If your costs per unit are $3.50, you are selling your product for $20, you want to make a 50% return on your investment, you have sunk costs of $100,000, how many units would you need to sell?

$3.50 + [(.50/X ) x $100,000)] = $20 X = 3,030.30 units

10. You have managed to design a new cover for cell phones that is water resistant, shock resistant, flame resistant, and theft resistant. Your costs to produce each of these covers is only $6 if manufactured in China. Ideally, you would like to make a 100% return on the money that you've already spent. You've already spent $125,000 (sunk costs) to develop this new cover. You have conducted some rudimentary market research that indicates you could sell approximately 225,000 covers in your first six months in business. What price should you charge for your magnificent cell phone cover? That is, what should be your target return price?