Question

Garcia Co. sells snowboards. Each snowboard requires direct materials of $100, direct labor of $30, and variable overhead of $45. The company expects fixed overhead costs of $635,000 and fixed selling and administrative costs of $115,000 for the next year. It expects to produce and sell 10,000 snowboards in the next year.
What will be the selling price per unit if Garcia uses a markup of 15% of total cost?

Answer 1

Total cost of 10000 snowboards

Per unit Total

Direct material 100 1000000

Direct Labor 30 300000

Variable overhead 45 450000

Fixed overhead 635000

Fixed selling and administrative costs 115000

Total cost of 10000 snowboards 2500000

Cost of one snowboard = Total cost of 10000 snowboards / Total number of snowboards

Cost of 1 snowboard $ 250

Thus, the cost of 1 snowboard = $ 250

Now, the selling price is set as = Total costs + 15 % on total costs

Selling price = $ 250 + (15 % × $ 250)

Selling price = $ 250 + $ 37.50

Selling price = $ 287.50 per snowboard