This is the variable cost per hour divided by the billing price per hour. This is not the way the markup percentage is calculated. The markup percentage is the percentage of the full cost that is added to the full cost to arrive at the billing price.
The full cost per hour is $6 variable costs plus $2 fixed costs ($100,000 annual fixed costs ÷ 50,000 budgeted hours of service). The full cost is therefore $8 per hour. The billing price is $9 per hour, and the difference is $1 per hour. $1 per hour divided by the full cost of $8 per hour = a markup percentage of .125 or 12.5%.
This is the billing price per hour minus the variable cost per hour, the difference divided by the billing price per hour. This is not the way the markup percentage is calculated. The markup percentage is the percentage of the full cost that is added to the full cost to arrive at the billing price.
This would be the markup on the variable costs only. The problem says that Almelo prices its services at full cost and uses a cost-plus pricing approach. Therefore, the full cost including fixed costs should be used in determining the markup percentage.
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