Question

Morales Corporation produces microwave ovens. The following per unit cost information is available: direct materials $40, direct labor $21, variable manufacturing overhead $14, fixed manufacturing overhead $45, variable selling and administrative expenses $14, and fixed selling and administrative expenses $26. Its desired ROI per unit is $28.80. Compute its markup percentage using a total-cost approach. (Round answer to 2 decimal places, e.g. 10.50%.)

Markup percentage

%

Answer 1

Total cost approach

Cost related to production

Direct Material	$40
Direct Labor	$21
Variable manufacturing overhead	$14
Fixed manufacturing overhead	$45
Total	$120

Cost related to selling

Variable selling and administrative expenses	$14
Fixed selling and administrative expenses	$26
Total	$40

Total cost=cost related to production+ cost related to selling

                = $120+$40= $160

ROI per unit= $28.80

Mark up %= ROI or profit/ Cost*100

                = $28.80/160*100= 18%

The answer would be 18% mark up.