Question

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			$231,800
Cost of goods sold:
Direct materials	$118,218
Direct labor	39,406
Overhead	27,816		185,440
Gross profit			$46,360
Selling and administrative expenses			26,600
Operating income			$19,760

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	$1,090
Direct labor	218
Applied overhead	109
Total cost	$1,417

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.)
$

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Partially Correct

Answer 1

Markup on COGS   = (Selling and administrative expenses + Operating income)/COGS

= ($26600 + $19760)/$185440

= 0.25, or 25% of cost of goods sold

2.     Job price = $1,417 + (0.25 × $1,417) = $1,417+ $354.25 = $1771.25

3.     Markup on direct materials = (Direct labor + Overhead + Selling and administrative expenses + Operating income)/Direct materials

= ($39406+ 27816 + 26600 + $19760)/$118218

= 0.96, or 96% of direct materials cost (rounded)

Job price = $1090 + (0.96 × $1090) = $1090 + $1046.40 = $2136.40 (rounded)