Macquarium Inc. provides computer$-$related services to its clients. Its two primary services are Web page design $($WPD$)$ and Internet consulting services $($ICS$).$ Assume that Macquarium$$s management expects to earn a $35\%$ annual return on the assets invested. Macquarium has invested $$13\mathrm{.}2$ million since its opening. The annual costs for the coming year are expected to be as follows:

Variable Costs Fixed Costs

Consulting support $$550,000$ $$3,850,000$

Sales and administration $330,0001,870,000$

The two services expend about equal costs per hour, and the predicted hours for the coming year are $15,000$ for WPD and $25,000$ for ICS.

Required

a$.$ If markup is based on variable costs, how much revenue must each service generate to provide the profit expected by corporate headquarters? What is the anticipated revenue per hour for each service?

Hint: Start by determining the markup rate.

Total Revenue Reveue per Hour

WPD Answer

Answer

ICS Answer

Answer

b$.$ If the markup is based on total costs, how much revenue must each service generate to provide the expected profit?

WPD Revenue: $Answer

ICS Revenue: $Answer

c$.$ What is total revenue for part $($a$)$ and total revenue for part $($b$)?$

Total revenue for $($a$)$: $Answer

Total revenue for $($b$)$: $Answer

d$.$ Label each of the following as an advantage or disadvantage of using a cost$-$based pricing model.

$1.$ Relatively easy and convenient Answer

$2.$ Based on cost data which may be erroneous Answer

$3.$ Used for new products where there is not markeplace data Answer

$4.$ Does not take into account product market demand Answer