Question

The procurement manager from a large merchandising firm has called your vice president for production to get a price quote for an additional 250 units of a given product. The vice president has asked you to prepare a cost estimate. The number of hours required to produce a unit is 4. The average labor rate is $16 per hour. The materials cost $22 per unit. Overhead for an additional 250 units is estimated at 50% of the direct labor cost. If the company wants to have a 25% profit margin, what should be the total price to quote?

A. $54,877

B. $61,890

C. $44,375

D. None of these

Answer 1

Answer is d) none of the above.

Price= $36875

Explanation:

In base of the following information, we need to calculate the price of 250 units:

- Q=250

- The number of hours required to produce a unit is 4. The average labor rate is​ $16 per hour.

- The materials cost​ $22 per unit.

- Overhead for an additional 250 units is estimated at​ 50% of the direct labor cost.

Total direct labor= (4hs*$16)*250= $16000

Total direct material= $22*250= $5500

Manufactured overhead= (0.50*16000)= $8000

Total cost= 16000 + 5500 + 8000= $29500

Cost of unit= 29500/250= $118

Profit= 25%

Price= $118*1.250= $147.5

Total price is $147.5*250= $36875