Question

You are considering a bid of $50.99 per unit per month for landscape services at a condo development where you are Board President. You have reliable data, based upon which you assume that the landscaper’s unit cost will be $44.50 per unit. Determine the appropriate price when:

1. The landscape contractor desires a markup of 10% over unit cost.

2. The landscape contractor is to realize a gross profit margin of 10%.

3. The landscape contractor will invest $10,000 to service the 125 units in your development and desires a gross profit margin of 10%.

4. A supplier charges $11.99 per unit for bulk lots of proprietary 6 ft. high speed HDMI cables. Assuming:

1. A profit margin of 8% and a cost markup pricing approach
2. Direct material costs of $6.50 per unit
3. Direct labor costs of $1.50 per unit
4. An industry average of overhead costs of 200% of labor costs.

Do you feel that the price per unit is fair, or do you need to apply pressure for a substantially lower price?   Why?

Answer 1

	Sales	$    50.99
	Cost	$    44.50
	Contribution Margin	$       6.49
a	Markup of 10%	$    58.13
b	Gross profit 10%	$    58.13
c	Fixed costs	$    80.00
	Gross profit 10%	$ 137.48

Direct Material	$       6.50
Direct Labour	$       1.50
Overheads	$       3.00
Total cost	$    11.00
Profit margin	$       0.88
Total to earn	$    11.88

Yes appropriate