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