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26 May, 06:52

Galla Inc. needs to determine a price for a new product. Galla desires a 25% markup on the total cost of the product. Galla expects to sell 5,000 units. Additional information is as follows: Variable product cost per unit $ 15 Variable administrative cost per unit 10 Total fixed overhead 45,000 Total fixed administrative 18,000 Using the total cost method what price should Galla charge?

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  1. 26 May, 07:03
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    Galla should charge $47

    Explanation:

    Data provided in the question:

    Desired markup = 25% of the total cost

    Units to be sold = 5,000

    Variable product cost per unit = $15

    Variable administrative cost per unit = 10

    Total fixed overhead = $45,000

    Total fixed administrative = $18,000

    Now,

    Total variable cost

    = Variable product cost per unit * Number of units to be sold

    = $15 * 5,000

    = $75,000

    Total variable administrative cost

    = Variable administrative cost per unit * Number of units to be sold

    = $10 * 5,000

    = $50,000

    Therefore,

    Total cost

    = Total variable cost + Total variable administrative cost + Total fixed overhead + Total fixed administrative

    = $75,000 + $50,000 + $45,000 + $18,000

    = $188,000

    Thus,

    Price per unit = Total cost : Number of units to be sold

    = $188,000 : 5,000

    = $37.6

    Price after markup = Price per unit + 25% of price per unit

    = $37.6 + (0.25 * $37.6)

    = $37.6 + $9.4

    = $47

    Hence,

    Galla should charge $47
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