Cost-Based Pricing Decision
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bidon a job that requires $2,430 of direct materials, $2,430 of directlabor, and $1,215 of overhead. Jeremy normally applies a standardmarkup based on cost of goods sold to arrive at an initial bidprice. He then adjusts the price as necessary in light of otherfactors (e.g., competitive pressure). Last year’s income statementis as follows:
Sales
$195,000
Cost of goods sold
58,500
Gross margin
$136,500
Selling andadministrative expenses
46,300
Operating income
$90,200
Required:
1. Calculate the markup that Jeremy willuse.%
2. What is Jeremy’s initial bid price?$
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