please make sure of your answers, this is the third time i post the same qoustio

Question

please make sure of your answers, this is the third time i post the same qoustion but i always get wrong answers. thank you

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: $130,000 48,100 81,900 46,300 35,600 Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Required: 1. Calculate the markup that Jeremy will use. 2. What is Jeremy's initial bid price?

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

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