The predicted 2014 costs for Osaka Motors are as follows: Manufacturing Costs Se

Question

The predicted 2014 costs for Osaka Motors are as follows: Manufacturing Costs Selling and Administrative Costs Variable $ 100,000 Variable $300,000 Fixed 220,000 Fixed 200,000 Average total assets for 2014 are predicted to be $5,000,000. (a) If management desires a 12 percent rate of return on total assets, what are the markup percentages for total variable costs and for total manufacturing costs? (Round your answer to the nearest whole percent.) Markup on variable costs % Markup on manufacturing costs % (b) If the company desires a 10 percent rate of return on total assets, what is the markup percentage on total manufacturing costs for (1) unassigned costs and (2) desired profit? (Round your answer to the nearest whole percent.) Markup to cover unassigned costs % Markup to cover desired profit %

Explanation / Answer

A)

Average total assets for 2014 are predicted to be $5,000,000

Return = $5,000,000 * 0.12 = $600,000

Markup % on Total Variable cost = ($420,000 + $600,000) / $400,000 = 2.55 or 255%

Markup % on Total Manufacturing cost= ($500,000 + $600,000) / $320,000 = 3.4375 or 343.75%

B)

10% of Total assets = $5,000,000 * 10% = $500,000

Markup % on Total Manufacturing cost= ($500,000 + $500,000) / $320,000 = 3.125 or 312.5%

unassigned costs = $500,000 / $320,000 = 1.5625 or 156.25% of manufacturing cost

desired profit = $500,000 / $320,000 = 1.5625 or 156.25%

Manufacturing Costs Selling and Administrative Costs Total Variable $ 100,000 Variable $300,000 $400,000 Fixed 220,000 Fixed 200,000 $420,000 Total $320,000 $500,000

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