Question

Nancy Company has budgeted sales of $300,000 with the following budgeted costs:

Direct materials $60,000

Direct manufacturing labor 40,000

Factory overhead

Variable 30,000

Fixed 50,000

Selling and administrative expenses

Variable 20,000

Fixed 30,000

Question 1: Compute the average markup percentage for setting prices as a percentage of the full cost of the product (5 points)

Question 2: Compute the average markup percentage for setting prices as a percentage of the variable cost of the product (5 points)

Question 3: Compute the average markup percentage for setting prices as a percentage of the variable manufacturing costs (5 points)

Answer 1

a) Compute the average markup percentage for setting prices as a percentage of the full cost of the product.



$60,000 + $40,000 + $30,000 + $50,000 + $20,000 + $30,000 = $230,000

($300,000 - $230,000)/$230,000 = 30.4%

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b) Compute the average markup percentage for setting prices as a percentage of the variable cost of the product.

b. $60,000 + $40,000 + $30,000 + $20,000 = $150,000

($300,000 - $150,000)/$150,000 = 100%

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c) Compute the average markup percentage for setting prices as a percentage of the variable manufacturing costs.

$60,000 + $40,000 + $30,000 = $130,000

($300,000 - $130,000)/$130,000 = 130.8%

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$60,000 + $40,000 + $30,000 + $50,000 = $180,000

($300,000 - $180,000)/$180,000 = 66.7%