Nancy Company has budgeted sales of $300,000 with the following budgeted costs:

Question

Nancy Company has budgeted sales of $300,000 with the following budgeted costs:

Direct materials $60,000

Direct manufacturing labor 40,000

Factory overhead

Variable 30,000

Fixed 50,000

Selling and administrative expenses

Variable 20,000

Fixed 30,000
a) Compute the average markup percentage for setting prices as a percentage of the full cost of the product.

b) Compute the average markup percentage for setting prices as a percentage of the variable cost of the product.

c) Compute the average markup percentage for setting prices as a percentage of the variable manufacturing costs.

Explanation / Answer

1. Full cost = 60000+40000+30000+50000+20000+30000 = 230,000 Sales budgeted = $ 300,000 Profit envisaged = 70,000 So mark-up on full cost = 70,000/230,000 = 30.43% 2. Profit envisaged = 70,000 So mark-up on the variable costs = 70,000/(60000+40000+30000+20000)=70000/150000 = 46.67% Profit envisaged = 70,000 So mark-up on the variable manufacturing costs = 70,000/(60000+40000+30000)=70000/130000 = 53.85% 3. Profit envisaged = 70,000 So mark-up on the variable manufacturing costs = 70,000/(60000+40000+30000)=70000/130000 = 53.85%

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