During the current year, Mast Corporation expects to produce 10,300 units and has budgeted the following: net income $350,376; variable costs $1,080,800; and fixed costs $105,000. It has invested assets of $1,459,900. The company’s budgeted ROI was 24%. What was its budgeted markup percentage using a full-cost approach?
To calculate the budgeted markup percentage using a full-cost approach, we need to determine the total cost of production and the desired ROI.
First, calculate the total cost of production:
Total Costs = Variable Costs + Fixed Costs
Total Costs = $1,080,800 + $105,000
Total Costs = $1,185,800
Next, calculate the desired ROI:
Desired ROI = ROI % / 100 * Invested Assets
Desired ROI = 24% / 100 * $1,459,900
Desired ROI = $350,376
Now, calculate the total cost plus the desired ROI:
Total Cost + Desired ROI = $1,185,800 + $350,376
Total Cost + Desired ROI = $1,536,176
Finally, calculate the markup percentage:
Markup Percentage = (Total Cost + Desired ROI) / Total Cost * 100
Markup Percentage = $1,536,176 / $1,185,800 * 100
Markup Percentage ≈ 129.63
Therefore, the budgeted markup percentage using a full-cost approach is approximately 129.63%.
To calculate the budgeted markup percentage using a full-cost approach, we need to first determine the desired return on investment (ROI).
The formula for ROI is:
ROI = Net Income / Average Invested Assets
Given that the budgeted ROI is 24%, and the invested assets are $1,459,900, we can calculate the desired net income:
Net Income = ROI * Average Invested Assets
Net Income = 24% * $1,459,900 = $350,376
Now, we can find the total costs incurred by the Mast Corporation:
Total Costs = Variable Costs + Fixed Costs
Total Costs = $1,080,800 + $105,000 = $1,185,800
To calculate the budgeted markup percentage, we use the following formula:
Markup Percentage = (Total Costs + Net Income) / Total Costs
Markup Percentage = ($1,185,800 + $350,376) / $1,185,800 = $1,536,176 / $1,185,800 ≈ 1.296 (rounded to three decimal places)
Therefore, the budgeted markup percentage using a full-cost approach is approximately 1.296 or 129.6%.