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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
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.
- 2. What is Jeremy’s initial bid price?
1.
Compute the markup that will be used by Person J.
Markup Percentage:
The percentage that is applied to the cost of any product or service is known as the markup percentage. The price using markup can be evaluated by adding the desired profit to the cost of any product or service.
Use the following formula to calculate the markup percentage:
Substitute $130,000 for sales and $48,100 for the cost of goods sold in the above formula
2.
Calculate the initial bid price.
Chapter 8 Solutions
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