Kulvekowski Company has budgeted sales of $30,000 with the following budgeted costs:

Direct materials $6,300
Direct labor $4,100
Variable factory overhead $3,700
Fixed factory overhead $5,600
Variable selling and administrative costs $2,400
Fixed selling and administrative costs $3,200

What is the average target markup percentage for setting prices as a percentage of total costs?

A.15.7%
B.20.1%
C.18.6%
D. none of the above

Option (c) is correct.

Explanation:

Given that,

Sales = $30,000

Direct materials = $6,300

Direct labor = $4,100

Variable factory overhead = $3,700

Fixed factory overhead = $5,600

Variable selling and administrative costs = $2,400

Fixed selling and administrative costs = $3,200

Total variable cost:

= Direct Material + Direct labor + Variable factory overhead + Variable selling and administrative costs

= $6,300 + $4,100 + $3,700 + $2,400

= $16,500

Total fixed cost:

= Fixed factory overhead + Fixed selling and administrative costs

= $5,600 + $3,200

= $8,800

Total cost = Fixed cost + Variable cost

                = $8,800 + $16,500

                = $25,300

Profit = Sales - Total cost

         = $30,000 - $25,300

         = $4,700

Mark Up as percentage of cost:

= (Profit ÷ cost) × 100

= ($4,700 ÷ $25,300) × 100

= 18.6%

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