Question

Gavin Petrosino, a building contractor, builds houses in tracts, often building as many as 20 homes simultaneously. Petrosino has budgeted costs for an expected number of houses in 20X0 as follows:
Direct materials ....... $ 3,000,000
Direct labor ......... 2,000,000
Job construction overhead .... 2,500,000
Cost of jobs ......... $ 7,500,000
Selling and administrative costs . 4,500,000
Total costs ......... $12,000,000

The job construction overhead includes approximately $1,500,000 of fixed costs, such as the salaries of supervisors and depreciation on equipment. The selling and administrative costs include $2,250,000 of variable costs, such as sales commissions and bonuses that depend fundamentally on overall profitability.
Petrosino wants an operating income of $1.2 million for 20X0.
Compute the average target markup percentage for setting prices as a percentage of the following:
1. Direct materials plus direct labor
2. The full “cost of jobs”
3. The variable “cost of jobs”
4. The full “cost of jobs” plus selling and administrative costs
5. The variable “cost of jobs” plus variable selling and administrative costs



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  • CreatedNovember 19, 2014
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