Question

The procurement manager from a large merchandising firm has called your vice president for production to get a price quote for an additional 300 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 300 units is estimated at 40% of the direct labor cost. If the company wants to have a 30% profit margin, what should be the total price to quote?

		A. $54,877
		B. $71,890
		C. $50,830
		D. None of these

Answer 1

Solution :

In base of the following information, we need to calculate the price of 300 units:

Quantity = 300 units

Number of hours required to produce a unit = 4 hours

Average labor rate = $16 per hour.

Materials cost​ = $22 per unit.

Thus, to produce 300 units of a given product = ($64 +$22)×300 = 300 × 86 = $25,800

Overhead cost of 300 units = 40% of (64x300) = 0.40 × 19,200 = $7680

Thus, total cost for 300 units = $25,800 x $7680 = $33,480

Total price of the quote = $33,480 + 30% of $33,480

Total price of the quote = $33,480 + $10,044 = $43,524

D.None of the above

Thus, Option D is correct Option.

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