Galla Incorporated needs to determine a price for a new product. Galla desires a 25% markup on the total cost of the product. Galla expects to sell 5,000 units. Additional information is as follows: Variable Costs per Unit Fixed Costs (total) Direct materials $ 8 Overhead $ 45,000Direct labor 9 General and administrative 18,000Overhead 7 General and administrative 13 Using the total cost method what price should Galla charge?
Question
Galla Incorporated needs to determine a price for a new product. Galla desires a 25% markup on the total cost of the product. Galla expects to sell 5,000 units. Additional information is as follows: Variable Costs per Unit Fixed Costs (total) Direct materials 45,000Direct labor 9 General and administrative 18,000Overhead 7 General and administrative 13 Using the total cost method what price should Galla charge?
Solution
To determine the price Galla should charge for the new product, we first need to calculate the total cost per unit.
Step 1: Calculate the total variable cost per unit The total variable cost per unit is the sum of the costs of direct materials, direct labor, overhead, and general and administrative costs.
9 (Direct labor) + 13 (General and administrative) = $37 per unit
Step 2: Calculate the total fixed costs The total fixed costs are the sum of overhead and general and administrative costs.
18,000 (General and administrative) = $63,000
Step 3: Calculate the total cost per unit The total cost per unit is the sum of the total variable cost per unit and the total fixed costs divided by the number of units expected to be sold.
63,000 (Total fixed costs) / 5,000 units = $49.6 per unit
Step 4: Calculate the price Galla should charge Galla wants a 25% markup on the total cost, so the price should be the total cost per unit plus 25% of the total cost per unit.
49.6 (25% markup) = $62 per unit
Therefore, Galla should charge $62 for the new product.
Similar Questions
Galla Incorporated is a competitive product market. The expected selling price is $415 per unit, and Galla’s target profit is 20% of the selling price. Using the target cost method, the highest that Galla’s cost per unit can be is:
Pauley Company needs to determine a markup for a new product. Pauley expects to sell 15,000 units and wants a target profit of $54 per unit. Additional information is as follows: Variable Costs per Unit Fixed Costs (total) Direct materials $ 24 Overhead $ 49,750Direct labor 25 General and administrative 56,750Overhead 18 General and administrative 27 Using the variable cost method, what markup percentage to variable cost should be used?
At a production level of 5,600 units, a project has total costs of $89,000 and a variable cost per unit of $11.20. What is the amount of the total fixed costs?
Unit operating expenses for an item costing $80 are estimated at 50% of cost, and the desired operating profit is 15% of cost.a. Determine the selling price. (Do not round intermediate calculations and round your final answer to 2 decimal places.)Selling price $ b. Determine the rate of markup on cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)Markup on cost %c. Determine the rate of markup on selling price. (Do not round intermediate calculations and round your final answer to 1 decimal place.)Markup on selling price %
A business has fixed costs of $3,570 per month and the product sells for $105. The variable cost is $26 per unit.The business wishes to make a profit of $4,227 AFTER tax.How many units must be sold? Answer in whole units only.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.