Question

Garcia Co. sells snowboards. Each snowboard requires direct materials of $105, direct labor of $35, and variable overhead of $50. The company expects fixed overhead costs of $645,000 and fixed selling and administrative costs of $111,000 for the next year. It expects to produce and sell 10,500 snowboards in the next year.

Required:
What will be the selling price per unit if Garcia uses a markup of 15% of total cost?

Answer 1

Answer:

Selling price = $301.3

Explanation:

The selling price would be determined by adding the total unit cost to the mark- up.

Mark up is the proportion of cost that is to be earned as profit.

Selling price = Total unit cost + Profit

Profit = 25% × unit cost

Selling price = Unit cost + Mark-up

Selling price = Unit cost + (15%× unit cost)

Total unit cost =Variable cost + unit fixed cost

Total fixed cost = 645,000 +  111,000 = 756,000

Unit fixed cost = $756,000 /10,500 =×72

Total unit cost = 105 + 35 + 50 + 72 = 262

Selling price = 262 + ( 15% + 262) = 301.3

Selling price = $301.3