Average total assets for 2009 are predicted to be $8,000,000.
(a) If management desires a 11 percent rate of return on total assets, what are the markup percentages for total variable costs and for total manufacturing costs? (Round your answers to the nearest whole percent.)
Markup on variable costs
Answer
%
Markup on manufacturing costs
Answer
%
(b) If the company desires a 8 percent rate of return on total assets, what is the markup percentage on total manufacturing costs for (1) unassigned costs and (2) desired profit? (Round your answers to the nearest whole percent.)
Markup to cover unassigned costs
Answer
%
Markup to cover desired profit
Answer
%
To calculate the markup percentages, we need to use the following formula:
Markup Percentage = (Desired Rate of Return / (1 - Variable Cost Percentage)) - 1
(a) If management desires an 11 percent rate of return on total assets:
(i) Markup on variable costs:
Variable Cost Percentage = 1 - (Rate of Return / Average Total Assets)
Variable Cost Percentage = 1 - (0.11 / 8,000,000) ≈ 0.9986
Markup on variable costs = (0.11 / (1 - 0.9986)) - 1 ≈ 6.00%
(ii) Markup on manufacturing costs:
Manufacturing Cost Percentage = Variable Cost Percentage ÷ (1 - Variable Cost Percentage)
Manufacturing Cost Percentage = 0.9986 ÷ (1 - 0.9986) ≈ 499
Markup on manufacturing costs = (0.11 / (1 - 0.9986)) - 1 ≈ 499%
(b) If the company desires an 8 percent rate of return on total assets:
(i) Markup to cover unassigned costs:
Unassigned Cost Markup Percentage = (Rate of Return / Average Total Assets) × Variable Cost Percentage
Unassigned Cost Markup Percentage = (0.08 / 8,000,000) × 0.9986 ≈ 0.0001
Markup to cover unassigned costs = 0.0001 ≈ 0.01%
(ii) Markup to cover desired profit:
Desired Profit Markup Percentage = (Rate of Return / Average Total Assets) × Manufacturing Cost Percentage
Desired Profit Markup Percentage = (0.08 / 8,000,000) × 0.9986 ≈ 0.0001
Markup to cover desired profit = 0.0001 ≈ 0.01%
Therefore, the answers to (a) are:
Markup on variable costs = 6%
Markup on manufacturing costs = 499%
The answers to (b) are:
Markup to cover unassigned costs = 0.01%
Markup to cover desired profit = 0.01%
To calculate the markup percentages for total variable costs and total manufacturing costs, you need to consider the desired rate of return on total assets.
(a) To calculate the markup percentage on variable costs, you can use the following formula:
Markup on variable costs = (Desired rate of return on total assets * Total assets) / Total variable costs
In this case, the desired rate of return on total assets is 11 percent and the predicted total assets for 2009 are $8,000,000. However, the question does not provide the total variable costs. To get this information, you will need additional data or further calculations.
Similarly, to calculate the markup percentage on manufacturing costs, you will need to know the total manufacturing costs.
(b) To calculate the markup percentage on total manufacturing costs for unassigned costs, you can use the following formula:
Markup to cover unassigned costs = (Desired rate of return on total assets * Total assets) / Unassigned costs
Again, the question does not provide the unassigned costs, so you will need additional data or further calculations.
To calculate the markup percentage on total manufacturing costs for desired profit, you can use the following formula:
Markup to cover desired profit = (Desired profit / Total manufacturing costs) * 100
In this case, the desired rate of return on total assets is 8 percent. The desired profit is not provided in the question, so you will need additional data or further calculations.
Without all the necessary data or calculations, it is not possible to provide specific answers to these questions.