Question

Markup on Cost, Job Pricing

Ventana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventana’s income statement for last year is as follows:

Revenues			$226,700
Cost of goods sold:
Direct materials	$114,000
Direct labor	38,000
Overhead	26,000		178,000
Gross profit			$48,700
Selling and administrative expenses			32,000
Operating income			$16,700

Ventana wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year.

Required:

1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round to the nearest whole percent. Use this amount for future calculations.)
% of cost of goods sold

2. A customer orders draperies and shades for a remodeling job. The job will have the following costs:

Direct materials	$1,230
Direct labor	250
Applied overhead	175
Total cost	$1,655

What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.)
$

3. What if Ventana wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round to the nearest whole percent. Use this amount for future calculations.)
% of direct materials cost

What is the bid price Ventana will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)
$

Answer 1

Req 1.
Ssales revenue			226700
Less: Cost of goods sold			178000
Markup required			48700
Divide: Cost of goods sold			178000
% markup on COGS			27.36%
Req 2.
Bid price of Job:
Cost:
material			1230
labour			250
overheads			175
Total cost of goods sold			1655
Add: Markup @ 27.36%			453
Bid price of Job:			2108
Req 3.
Ssales revenue			226700
Lless: Direct material cost			114000
Markup required			112700
Divide: Direct material cost			114000
% markup on COGS			98.86%
Req 4.
Bid price of Job:
Total Direct material c ost			1230
Add: Markup @ 98.86%			1216
Bid price of Job:			2446