ICAEW BIP · Chapter 4 · Question 9 of 11
Fenwick Ltd expects to sell 20,000 units of a product a year. The full cost is £45 per unit. The capital employed in making the product is £1,200,000, and the company requires an annual return of 15% on capital employed. What selling price per unit is needed to achieve the required return?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) £54.00
Explanation
Required annual profit = £1,200,000 x 15% = £180,000. Required profit per unit = £180,000 / 20,000 = £9.00. Selling price = full cost £45 + £9.00 = £54.00. Applying a 15% mark-up to cost confuses return on capital with return on cost.
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