Product Pricing: Two Products

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$$s management expects to earn a $35\%$ annual return on the assets invested. Macquarium has invested $$10\mathrm{.}8$ million since its opening. The annual costs for the coming year are expected to be as follows:

Variable Costs Fixed Costs

Consulting support $$450,000$ $$3,150,000$

Sales and administration $270,0001,530,000$

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

$2,362,500$

Answer

$166\mathrm{.}5$

ICS Answer

$1,417,500$

Answer

$334\mathrm{.}5$

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

WPD Revenue: $Answer

$4,162,500$

ICS Revenue: $Answer

$5,017,500$

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

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

$3,780,000$

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

$9,180,000$