Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
Baker has a target profit of $150,000.
-The average target profit percentage for setting prices as a percentage of variable manufacturing costs would be
A) 328 percent.
B) 87 percent.
C) 228 percent.
D) 65 percent.

Question

Baker Company budgeted the following costs for the production of its one and only product, blades, for the next fiscal year:
  Baker has a target profit of $150,000.
-The average target profit percentage for setting prices as a percentage of variable manufacturing costs would be
A) 328 percent. 
B) 87 percent. 
C) 228 percent. 
D) 65 percent.

Quizplus · Accepted Answer

To calculate the target profit percentage, we first need to calculate the total variable manufacturing costs. 
Total variable manufacturing costs = Direct materials + Direct labor + Variable factory overhead 
= $300,000 + $450,000 + $240,000 
= $990,000

Next, we need to add the target profit to the total variable manufacturing costs 
Total cost and profit = Total variable manufacturing costs + Target profit 
= $990,000 + $150,000 
= $1,140,000

Finally, we can calculate the average target profit percentage as: 
Average target profit percentage = (Target profit ÷ Total cost and profit) x 100% 
= ($150,000 ÷ $1,140,000) x 100% 
≈ 13.16%

Therefore, the closest answer choice to our calculated percentage is B) 87%.

Baker Company Budgeted the Following Costs for the Production of Its