Asked by Kirtley Pemberton on May 31, 2024
Verified
Ajax Corporation purchases business furniture at a cost of $500 less 18%. Its policy is to mark-up the cost of the furniture by 30% of the selling price. As well, operating expenses are 20% of cost. In order to breakeven, Ajax has to sell the furniture at a selling price of $450.
Breakeven
A situation where the sum of all costs equals the sum of all revenues, with no profit or loss occurring.
Mark-up
The amount added to the cost price of goods to cover overhead and profit, often expressed as a percentage of the cost.
Operating Expenses
Costs associated with the day-to-day operations of a business, excluding cost of goods sold.
- Comprehend the principles of mark-up, markdown, and break-even price within the retail sector.
- Assess the effects of operating costs on pricing strategies and profit margins.
Verified Answer
NB
nichole bennettJun 01, 2024
Final Answer :
False
Explanation :
The cost of the furniture after the discount is $410 ($500 - 18% of $500 = $500 - $90 = $410). To calculate the selling price for a 30% markup on the selling price (SP), we use the formula SP = Cost / (1 - Markup Percentage). However, the given information is not sufficient to accurately determine the break-even selling price without knowing the exact relationship between the markup based on selling price and how operating expenses are factored into their pricing strategy. The provided statement simplifies the calculation without considering the correct application of the markup based on selling price and operating expenses in the break-even analysis.
Learning Objectives
- Comprehend the principles of mark-up, markdown, and break-even price within the retail sector.
- Assess the effects of operating costs on pricing strategies and profit margins.