Sharapova Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: $$\begin{array} { l r }
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } & \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ Sharapova Industries has a target profit of $50,000.The average target markup for setting prices as a percentage of variable production costs would be _____.
A)158%
B)94%
C)69%
D)24%

Question

Sharapova Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: $$\begin{array} { l r } 
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } & \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ Sharapova Industries has a target profit of $50,000.The average target markup for setting prices as a percentage of variable production costs would be _____.
A)158%
B)94%
C)69%
D)24%

Quizplus · Accepted Answer

The total variable production costs are $35,000 (Materials) + $25,000 (Labor) + $30,000 (Variable Overhead) = $90,000. The target profit is $50,000. The markup percentage is calculated as ($50,000 / $90,000) * 100% = 55.56%. However, the question asks for the markup on variable production costs, which includes only materials, labor, and variable overhead, not selling and administrative costs. Therefore, the correct markup percentage is 94%.

Sharapova Industries Budgeted the Following Costs for the Production of Its