Question

The predicted 2017 costs for Gamma Motors are as follows: Manufacturing Costs Selling and Administrative Costs Variable $250,000 Variable $600,000 Fixed 450,000 Fixed 300,000 Average total assets for 2017 are predicted to be $5,000,000. If the company desires a 10 percent rate of return on total assets, what is the markup percentage on total manufacturing costs for the desired profit

Answer 1

Answer: 200%

Explanation:

First find the return required.

= 10% of total assets

= 10% * 5,000,000

= $500,000

The total manufacturing costs are:

= 250,000 + 450,000

= $700,000

We need to know the amount to increase the manufacturing costs by so that it covers both the desired return and the admin costs:

= (Desired return + Admin costs) / Manufacturing costs * 100%

= (500,000 + 600,000 + 300,000) / 700,000 * 100%

= 200%