Thrilling Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: $$\begin{array} { l c }
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ Thrilling Industries has a target profit of $30,000. The average target markup for setting prices as a percentage of prime costs would be:

Question

Thrilling Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: $$\begin{array} { l c } 
\text { Materials } & \$ 35,000 \
\text { Labor } & 25,000 \
\text { Overhead: } & \
\text { Variable } & 30,000 \
\text { Fixed } & 15,000 \
\text { Selling and administrative: } \
\text { Variable } & 7,500 \
\text { Fixed } & \underline { 12,500 } \
\text { Total costs } & \$ 125,000
\end{array}$$ Thrilling Industries has a target profit of $30,000. The average target markup for setting prices as a percentage of prime costs would be:

Quizplus · Accepted Answer

Prime costs are the sum of materials and labor costs. In this case, prime costs are $35,000 + $25,000 = $60,000. The target markup as a percentage of prime costs is (Target profit / Prime costs) * 100 = ($30,000 / $60,000) * 100 = 50%. The average target markup for setting prices as a percentage of prime costs would be 158% (100% + 50%).

Thrilling Industries Budgeted the Following Costs for the Production of Its