An executive from a large merchandising firm has called your vice president for production to get a price quote for an additional 100 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 8. The average labor rate is $17 per hour. The materials cost $14 per unit. Overhead for an additional 100 units is estimated at 30% of the direct labor cost. If the company wants to have a 40% profit margin, what should be the price to quote for 100 units?

Question

Danielle Eaton

Business

16 December, 06:13

An executive from a large merchandising firm has called your vice president for production to get a price quote for an additional 100 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 8. The average labor rate is $17 per hour. The materials cost $14 per unit. Overhead for an additional 100 units is estimated at 30% of the direct labor cost. If the company wants to have a 40% profit margin, what should be the price to quote for 100 units?

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Answers (1)

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Maeve Duffy · Answer 1

Price = $267,12

Explanation:

In base of the following information, we need to calculate the price of 100 units:

- Q=100

- The number of hours required to produce a unit is 8. The average labor rate is $17 per hour.

- The materials cost $14 per unit.

- Overhead for an additional 100 units is estimated at 30% of the direct labor cost.

Total direct labor = (8hs*$17) * 100 = $13600

Total direct material = $14*100 = $1400

Manufactured overhead = (0,30*13600) = $4080

Total cost = 13600 + 1400 + 4080 = $19080

Cost of unit = 19080/100 = $190,8

Profit = 40%

Price = $190,8*1,40 = $267,12