Question

Galla Inc. 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 product cost per unit $ 15 Variable administrative cost per unit 10 Total fixed overhead 45,000 Total fixed administrative 18,000 Using the total cost method what price should Galla charge?

Answer 1

Answer:

Galla should charge $47

Explanation:

Data provided in the question:

Desired markup = 25% of the total cost

Units to be sold = 5,000

Variable product cost per unit = $15

Variable administrative cost per unit = 10

Total fixed overhead = $45,000

Total fixed administrative = $18,000

Now,

Total variable cost

= Variable product cost per unit × Number of units to be sold

= $15 × 5,000

= $75,000

Total variable administrative cost

= Variable administrative cost per unit × Number of units to be sold

= $10 × 5,000

= $50,000

Therefore,

Total cost

= Total variable cost  + Total variable administrative cost + Total fixed overhead + Total fixed administrative

= $75,000 + $50,000 + $45,000 + $18,000

= $188,000

Thus,

Price per unit = Total cost ÷ Number of units to be sold

= $188,000 ÷ 5,000

= $37.6

Price after markup = Price per unit + 25% of price per unit

= $37.6 + ( 0.25 × $37.6 )

= $37.6 + $9.4

= $47

Hence,

Galla should charge $47