The predicted 2009 costs for Osaka Motors are as follows:
Manufacturing Costs Selling and Administrative Costs
Variable $100,000 Variable $300,000
Fixed 220,000 Fixed 200,000
Average total assets for 2009 are predicted to be $7,000,000.
(a) If management desires a 13 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
33
%
Markup on manufacturing costs Answer
36
%
(b) If the company desires a 10 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
22
%
Markup to cover desired profit Answer
18
%
To find the markup percentages, we need to calculate the total variable costs and total manufacturing costs first.
Total variable costs = Variable manufacturing costs + Variable selling and administrative costs
Total variable costs = $100,000 + $300,000 = $400,000
Total manufacturing costs = Variable manufacturing costs + Fixed manufacturing costs
Total manufacturing costs = $100,000 + $220,000 = $320,000
(a) Markup on variable costs:
To find the markup percentage on total variable costs, we divide the desired rate of return on total assets by the total variable costs and multiply by 100.
Markup on variable costs = (Rate of return / Total variable costs) * 100
Markup on variable costs = (13% / $400,000) * 100 ≈ 0.0325 * 100 ≈ 3.25%
Rounded to the nearest whole percent, the markup on variable costs is 3%.
Markup on manufacturing costs:
To find the markup percentage on total manufacturing costs, we divide the desired rate of return on total assets by the total manufacturing costs and multiply by 100.
Markup on manufacturing costs = (Rate of return / Total manufacturing costs) * 100
Markup on manufacturing costs = (13% / $320,000) * 100 ≈ 0.0406 * 100 ≈ 4.06%
Rounded to the nearest whole percent, the markup on manufacturing costs is 4%.
(b) Markup to cover unassigned costs:
To find the markup percentage on total manufacturing costs to cover unassigned costs, we subtract the desired rate of return on total assets from the desired rate of return on total manufacturing costs and divide by the total manufacturing costs. Then, we multiply by 100.
Markup to cover unassigned costs = ((Rate of return on manufacturing costs - Rate of return) / Total manufacturing costs) * 100
Markup to cover unassigned costs = ((13% - 10%) / $320,000) * 100 ≈ 0.0094 * 100 ≈ 0.94%
Rounded to the nearest whole percent, the markup to cover unassigned costs is 1%.
Markup to cover desired profit:
To find the markup percentage on total manufacturing costs to cover desired profit, we subtract the desired rate of return on total assets from the desired rate of return on total manufacturing costs minus unassigned costs. Then, we divide by the total manufacturing costs and multiply by 100.
Markup to cover desired profit = ((Rate of return on manufacturing costs - Rate of return - Markup to cover unassigned costs) / Total manufacturing costs) * 100
Markup to cover desired profit = ((13% - 10% - 1%) / $320,000) * 100 ≈ 0.0194 * 100 ≈ 1.94%
Rounded to the nearest whole percent, the markup to cover desired profit is 2%.