Johanson Company had the following information: Revenues $400,000
Cost of goods sold:
Direct materials $100,000 Direct labor 50,000
Overhead 50,000 200,000
Gross profit $200,000
Selling and administrative expenses
75,000
Operating income $125,000
What is the markup based on prime costs?

Question

Johanson Company had the following information: Revenues $400,000
Cost of goods sold:
Direct materials $100,000 Direct labor 50,000
Overhead 50,000 200,000
Gross profit $200,000
Selling and administrative expenses
75,000
Operating income $125,000
  What is the markup based on prime costs?

Quizplus · Accepted Answer

Markup based on prime costs is calculated as (Selling price - Direct materials cost - Direct labor cost) / Direct materials cost. In this case, the selling price is the revenues which is $400,000. Direct materials cost and direct labor cost are $100,000 and $50,000 respectively. Therefore, the markup based on prime costs is (($400,000 - $100,000 - $50,000) / $100,000) x 100% = 166.7%.

Johanson Company Had the Following Information: Revenues $400,000