Tony Nunzio, a building contractor, builds parking garages. His company is capable of building multiple parking garages at once. Nunzio has budgeted for an expected number of parking garages in 2015 as follows:
Direct Materials $2,000,000
Direct Labor $3,000,000
Job construction overhead - Variable Costs $2,000,000
Job construction overhead - Fixed Costs $1,000,000
Cost of jobs $8,000,000
Selling and Administrative Costs - Variable $2,500,000
Selling and Administrative Costs - Fixed $1.500,000
Total Costs $12,000,000
Nunzio wants an operating income of $2,000,000 for 2015.
Compute the average target markup percentage for setting prices as a percentage of the following:
Direct Materials plus Direct Labor
The full "Cost of Jobs"
The Variable "Cost of Jobs"
The full "Cost of Jobs" plus Selling and Administrative Costs
Why are these calculations important?