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)
To answer the questions, we need to determine the full cost, the variable cost, and the variable manufacturing costs.
Full Cost:
The full cost includes direct materials, direct manufacturing labor, variable factory overhead, and fixed factory overhead.
Full Cost = Direct materials + Direct manufacturing labor + Variable factory overhead + Fixed factory overhead
= $60,000 + $40,000 + $30,000 + $50,000
= $180,000
Variable Cost:
The variable cost includes direct materials, direct manufacturing labor, and variable factory overhead.
Variable Cost = Direct materials + Direct manufacturing labor + Variable factory overhead
= $60,000 + $40,000 + $30,000
= $130,000
Variable Manufacturing Costs:
The variable manufacturing costs include direct materials and direct manufacturing labor.
Variable Manufacturing Costs = Direct materials + Direct manufacturing labor
= $60,000 + $40,000
= $100,000
Question 1: Compute the average markup percentage for setting prices as a percentage of the full cost of the product.
Average Markup Percentage (Full Cost) = (Budgeted Sales - Full Cost) / Full Cost * 100
= ($300,000 - $180,000) / $180,000 * 100
= $120,000 / $180,000 * 100
= 66.67%
Therefore, the average markup percentage for setting prices as a percentage of the full cost of the product is 66.67%.
Question 2: Compute the average markup percentage for setting prices as a percentage of the variable cost of the product.
Average Markup Percentage (Variable Cost) = (Budgeted Sales - Variable Cost) / Variable Cost * 100
= ($300,000 - $130,000) / $130,000 * 100
= $170,000 / $130,000 * 100
= 130.77%
Therefore, the average markup percentage for setting prices as a percentage of the variable cost of the product is 130.77%.
Question 3: Compute the average markup percentage for setting prices as a percentage of the variable manufacturing costs.
Average Markup Percentage (Variable Manufacturing Costs) = (Budgeted Sales - Variable Manufacturing Costs) / Variable Manufacturing Costs * 100
= ($300,000 - $100,000) / $100,000 * 100
= $200,000 / $100,000 * 100
= 200%
Therefore, the average markup percentage for setting prices as a percentage of the variable manufacturing costs is 200%.
To answer these questions, we need to understand what average markup percentage means and how to calculate it in different scenarios.
The average markup percentage measures how much a company adds to the cost of producing a product to determine its selling price. In the context of these questions, we will calculate the average markup percentage based on different cost components.
Question 1: Average markup percentage for setting prices as a percentage of the full cost of the product.
To calculate this, we need to determine the total cost of the product, which includes direct materials, direct manufacturing labor, factory overhead (both variable and fixed), and selling and administrative expenses (both variable and fixed).
Total cost of the product = Direct materials + Direct manufacturing labor + Factory overhead (variable + fixed) + Selling and administrative expenses (variable + fixed)
Total cost of the product = $60,000 + $40,000 + $30,000 + $50,000 + $20,000 + $30,000
Next, we need to calculate the markup amount by subtracting the total cost of the product from the budgeted sales.
Markup amount = Budgeted sales - Total cost of the product
Markup amount = $300,000 - ($60,000 + $40,000 + $30,000 + $50,000 + $20,000 + $30,000)
Finally, we can calculate the average markup percentage by dividing the markup amount by the total cost of the product and multiplying by 100.
Average markup percentage = (Markup amount / Total cost of the product) * 100
Question 2: Average markup percentage for setting prices as a percentage of the variable cost of the product.
To calculate this, we need to determine the variable cost of the product, which includes direct materials, direct manufacturing labor, and variable factory overhead.
Variable cost of the product = Direct materials + Direct manufacturing labor + Variable factory overhead
Variable cost of the product = $60,000 + $40,000 + $30,000
Next, we calculate the markup amount and then the average markup percentage using the same steps as in question 1.
Question 3: Average markup percentage for setting prices as a percentage of the variable manufacturing costs.
In this scenario, we consider only the variable manufacturing costs, which include direct materials, direct manufacturing labor, and variable factory overhead.
Variable manufacturing costs = Direct materials + Direct manufacturing labor + Variable factory overhead
Variable manufacturing costs = $60,000 + $40,000 + $30,000
Again, we calculate the markup amount and average markup percentage using the same steps as in question 1.
By following these steps, you can calculate the average markup percentage for setting prices in different scenarios based on the given budgeted costs.
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%