B. A purchase manager of a large merchandising firm has called your General Mana

Question

B. A purchase manager of a large merchandising firm has called your General Manager for production to get a price quote for an additional 1,000 units of a given product. The vice president has asked you to prepare a cost estimate. The number of hours required to produce a unit of 50. The average labor rate is S120 per hour. The materials cost S140 per unit. Overhead for an additional 1,000 units is estimated at 50% of the direct labor cost. If the company wants to have a 30% profit margin, what should be the unit price to quote?

Explanation / Answer

Number of labor hours required to produce one unit= 50

Labor Rate = $120

So total labor cost = 50*$120 =$6000

Material cost per unit=$140

Overhead per unit = ( 50% of $6000)/1000=$3

So total cost of production per unit = $6000+$140+$3=$6143

Profit margin= $6403*0.3=1842.9

Per unit price = $6143+$1842.9 =$7985.9

So the price quote ==$7985.9

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