An executive from a large merchandising firm has called your vice president for

Question

An executive from a large merchandising firm has called your vice president for production to get a price quote for an additional 100 units of a given product. The vice president has asked you to prepare a cost estimate. The number of hours required to produce a unit is 5. The average labor rate is 12 per hour. The materials cost 14 per unit. Overhead for an additional 100 units is estimated at 50% of the direct labor cost. If the company wants to have a 30% profit margin, what should be the unit price to quote?

Explanation / Answer

profit margin is calculated on net income so

let price is P

(100P-10400)/100P = .3

P= 1040/7 =148.57

The number of hours required to produce a unit 5 The avarege labor rate 12 material cost 14 Overhead for an additional 100 units 50% of labour cost profit margin 30% Total Labour cost for 1 unit 60 Total Labour cost for 100 unit 6000 Material cost 1400 overhead 3000 total cost 10400

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