A firm charges $25 for a product. If the markup is 25 percent, then the fully allocated average cost of the product is $20.
The term "markup" describes the discrepancy between an item's cost and its selling price. In other words, the vendor makes money by charging a premium over the overall cost of the commodity or service.
A business should realise the importance of markup. For instance, developing a sound pricing strategy is one of the most crucial resources a successful company can have. A product or service's markup needs to be high enough to cover all costs and turn a profit.
Retail price = $25
Markup =25% =0.25
Retail price = Average cost of product * (1+Markup)
25 = Average cost of product *1.25
Average cost of product =25/1.25
Average cost of product = $20
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