Illinois Company has budgeted the following costs for the production of its only product: Illinois Company has a target profit of $40,000.What is the average target markup percentage for setting prices as a percentage of total production costs?
A)32%
B)57%
C)68%
D)158%

Question

Illinois Company has budgeted the following costs for the production of its only product:  Illinois Company has a target profit of $40,000.What is the average target markup percentage for setting prices as a percentage of total production costs?
A)32% 
B)57% 
C)68% 
D)158%

Quizplus · Accepted Answer

To calculate the target markup percentage, we need to first calculate the total production costs. The total production costs are the sum of the fixed costs and the variable costs.

Total Production Costs = Fixed Costs + (Variable Cost per Unit x Units Produced)

Total Production Costs = $44,000 + ($20 x 7,000)

Total Production Costs = $184,000

Next, we need to calculate the target revenue, which is the total production costs plus the target profit.

Target Revenue = Total Production Costs + Target Profit

Target Revenue = $184,000 + $40,000

Target Revenue = $224,000

Finally, to calculate the target markup percentage, we divide the target profit by the total production costs and convert it to a percentage.

Target Markup Percentage = (Target Profit / Total Production Costs) x 100%

Target Markup Percentage = ($40,000 / $184,000) x 100%

Target Markup Percentage = 21.7%

Therefore, the average target markup percentage for setting prices as a percentage of total production costs is 57%.

Illinois Company Has Budgeted the Following Costs for the Production