McEnroe Industries budgeted the following costs for the production of its only product, tennis balls, for the next fiscal year: $$\begin{array} { l r }
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } & \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ McEnroe Industries has a target profit of $60,000.The average target markup for setting prices as a percentage of prime costs would be _____.
A)38%
B)61%
C)208%
D)63%

Question

McEnroe Industries budgeted the following costs for the production of its only product, tennis balls, for the next fiscal year: $$\begin{array} { l r } 
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } & \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ McEnroe Industries has a target profit of $60,000.The average target markup for setting prices as a percentage of prime costs would be _____.
A)38%
B)61%
C)208%
D)63%

Quizplus · Accepted Answer

Prime costs consist of direct materials and direct labor, which total $35,000 + $25,000 = $60,000. The target profit is $60,000. The target markup on prime costs is calculated as (Target Profit / Prime Costs) * 100 = ($60,000 / $60,000) * 100 = 100%. However, the question asks for the markup as a percentage of prime costs, which includes the prime costs themselves in the base. Therefore, the correct calculation should include both the target profit and the prime costs in the numerator, making it (($60,000 + $60,000) / $60,000) * 100 = 200%. The provided options do not include 200%, indicating a misunderstanding in the explanation process. The correct approach to find the markup percentage based on the given options and understanding that the calculation might involve a different interpretation or additional costs might have been intended to be included in the calculation. Given the options and the typical calculation for markup based on prime costs, none of the provided calculations directly lead to the options given, suggesting a need for clarification in the question or a reevaluation of the calculation method. The correct answer should involve calculating the markup over prime costs, but the provided answer options and the calculation do not align with standard accounting practices for determining markup based on prime costs alone.

McEnroe Industries Budgeted the Following Costs for the Production of Its