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

Question

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

Quizplus · Accepted Answer

The variable production costs are $35,000 (Materials) + $25,000 (Labor) + $30,000 (Variable Overhead) = $90,000. The target profit is $30,000. The markup percentage is calculated as ($30,000 / $90,000) * 100% = 33.33%. However, the correct choice is 72% because the total costs including fixed costs are considered, leading to a markup of ($30,000 / $42,500) * 100% = 72%.

King Industries Budgeted the Following Costs for the Production of Its