Cost-Based Pricing Decision Jeremy Costa, owner of Costa Cabinets Inc., is prepa

Question

Cost-Based Pricing Decision

Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows:

Required:

1. Calculate the markup that Jeremy will use. Round your answer to one decimal place.
________%

2. What is Jeremy's initial bid price? Round your answer to the nearest dollar.
$________

Sales $130,000 Cost of goods sold 48,100    Gross margin $ 81,900 Selling and administrative expenses 46,300    Operating income $ 35,600

Explanation / Answer

Part 1)

The markup percentage has been calculated with the use of following formula:

Markup = (Selling and Administrative Expenses + Operating Income)/Net Sales*100

_________

Using the values provided in the question, we get,

Markup = (46,300 + 35,600)/130,000*100 = 63%

_________

Part 2)

The bid price has been calculated with the use of following table:

Direct Material 1,800 Direct Labor 1,600 Overhead 800 Total Cost 4,200 Markup (4200*63%) 2,646 Initial Bid Price $6,846

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---