Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:

Wilde has an annual target operating income of $920,000.
The markup percentage for setting prices as a percentage of variable manufacturing costs is ________.
A) 52.83%
B) 89.73%
C) 65.31%
D) 21.17%

Question

Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year:

Wilde has an annual target operating income of $920,000.
The markup percentage for setting prices as a percentage of variable manufacturing costs is ________.
A) 52.83% 
B) 89.73% 
C) 65.31% 
D) 21.17%

Quizplus · Accepted Answer

To calculate the markup percentage for setting prices, we need to first calculate the total variable manufacturing costs:

Direct Materials + Direct Labor + Variable Manufacturing Overhead
= $126,000 + $600,000 + $164,000
= $890,000

Next, we need to calculate the required total revenue to achieve the target operating income of $920,000:

Total Revenue = Total Costs + Target Operating Income
Total Revenue = Fixed Costs + Variable Costs + Target Operating Income
Total Revenue = $1,480,000 + ($890,000) + $920,000
Total Revenue = $3,290,000

Finally, we can calculate the markup percentage:

Markup Percentage = (Total Revenue - Variable Costs) / Variable Costs
Markup Percentage = ($3,290,000 - $890,000) / $890,000
Markup Percentage = 2.7 or 270%

However, since we want the markup percentage as a percentage of variable manufacturing costs, we need to divide by the variable manufacturing costs:

Markup Percentage = (Total Revenue - Variable Costs) / Variable Costs
Markup Percentage = (($3,290,000 - $890,000) / $890,000) * (1 / 3)
Markup Percentage = 89.73%

Therefore, the answer is B) 89.73%.

Wilde Corporation Budgeted the Following Costs for the Production of Its