Cost-Based Pricing Decision Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $2,430 of direct materials, $2,430 of direct labor, and $1,215 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows: Required: 1. Calculate the markup that Jeremy will use.% 2. What is Jeremy's initial bid price?$ Sales $195,000 Cost of goods sold 58,500 Gross margin $136,500 Selling and administrative expenses 46,300 Operating income $90,200
Cost-Based Pricing Decision Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $2,430 of direct materials, $2,430 of direct labor, and $1,215 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows: Required: 1. Calculate the markup that Jeremy will use.% 2. What is Jeremy's initial bid price?$ Sales $195,000 Cost of goods sold 58,500 Gross margin $136,500 Selling and administrative expenses 46,300 Operating income $90,200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cost-Based Pricing Decision
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $2,430 of direct materials, $2,430 of direct labor, and $1,215 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows:
Required:
1. Calculate the markup that Jeremy will use.%
2. What is Jeremy's initial bid price?$
|
Sales |
$195,000 |
|
|
Cost of goods sold |
58,500 |
|
|
|
Gross margin |
$136,500 |
|
Selling and administrative expenses |
46,300 |
|
|
|
Operating income |
$90,200 |
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