To compute average target markup percentage for setting prices, assume the following:

Direct materials cost $3 million, and Direct Labor Costs $2 million. Ultimately totals costs given other variables ammount to $12 million. The target operating income is $1.2 million. Lets say I'd like to compute the average target markup percentage of direct materials plus direct labor. Would you divide the target operating income into the total of materials and labor? Just curious because I have been getting different answers for classmates. Many of my classmates are viewing the operating income as a profit but I view operating income as a loss, something that shouldn't be added to the total cost to predict the percentage. Could you please provide an explanation for arriving at such a solution. Thanks!