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Wilde Corporation budgeted the following costs for the production of its one and only product for...

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

Direct materials ​$1,140,000

Direct labor ​795,000

Manufacturing overhead: Variable ​840,000   // Fixed ​700,000

Selling and administrative: Variable ​360,000 // Fixed ​530,000

Total costs ​$4,365,000

Wilde has an annual target operating income of​ $920,000.

The markup percentage for setting prices as a percentage of the variable cost of the product is​ ________.

A. 68.6% [right answer]

B. 27.5%

C. 39.2%

D. 46.3%

I know the correct answer, but not how to arrive at that answer. Please explain. Thank you!

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Answer #1

Total fixed cost = 700,000+530,000 = 1,230,000

Total Variable cost = 1,140,000+795,000+840,000+360,000 = 3,135,000

The markup percentage for setting prices as a percentage of the variable cost of the product

= (Total fixed cost + Target operating income) /Total Variable cost

= (1,230,000+920,000)/3,135,000

= 2,150,000/3,135,000

= 68.6%

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