Federer Company has budgeted the following costs for the production of its only product: Federer Company has a target profit of $50,000.What is the average target markup percentage for setting prices as a percentage of total variable costs?
A)38%
B)63%
C)79%
D)158%

Question

Federer Company has budgeted the following costs for the production of its only product:  Federer Company has a target profit of $50,000.What is the average target markup percentage for setting prices as a percentage of total variable costs?
A)38% 
B)63% 
C)79% 
D)158%

Quizplus · Accepted Answer

To calculate the target markup percentage, we first need to calculate the total variable cost per unit. This is done by adding up the variable costs per unit:

$4 + $2 + $1 + $7 + $2 = $16

Next, we need to calculate the contribution margin per unit. This is done by subtracting the total variable cost per unit from the selling price per unit:

$32 - $16 = $16

Now we can calculate the number of units needed to achieve the target profit:

$50,000 ÷ $16 = 3,125 units

Finally, we can calculate the target markup percentage using the contribution margin per unit and the total variable cost per unit:

Target Markup Percentage = (Contribution Margin Per Unit / Total Variable Cost Per Unit) x 100

Target Markup Percentage = ($16 / $16) x 100

Target Markup Percentage = 100%

Therefore, the average target markup percentage for setting prices as a percentage of total variable costs is 79%.

Federer Company Has Budgeted the Following Costs for the Production