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 35% of the direct labor cost. If the company wants to have a 35% profit margin, what should be the total price to quote?

  

A. $88,877

  

B. $91,670

  

C. $43,875

  

D. None of these

Answer 1

Given the information in the question, we have to calculate price of 250 units.

Thus Q = 250 units

The number of hours required to produce one unit is 4 and labor rate is​ $16 per hour.

The materials cost​ $22 per unit.

Overhead for an additional 250 units is given as to be estimated at​ 35% of the direct labor cost.

Total direct labor cost= (hours per units*labor cost per hour)*total units= (4*16)*250= $ 16,000

Total direct material cost = material cost per unit*total units= $22*250= $ 5,500

Overhead costs= 35% of direct labor cost= (0.35*16,000)= $ 5,600

Total cost= 16,000+ 5,500+5,600= $27,100

Cost per unit of the good = 27,100/250 = $108.4

The company wants profit margin of 35%,

Thus, profit per unit would be 35/100*108.4= 37.94

The price to be quoted per unit would thus be = cost per unit + profit per unit= 108.4+37.94 = $146.34

For all the 250 units of the good, price quoted should be 146.34*250= 36,585

Thus, correct option is D- none of the above.