Question

Cost-Based Pricing Decision

Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,980 of direct materials, $2,079 of direct labor, and $1,386 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:

Sales		$175,500
Cost of goods sold		105,300
	Gross margin	$70,200
Selling and administrative expenses		46,300
	Operating income	$23,900

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.
$

Answer 1

Answer