Problem: Pricing - Katz Inc.
Bob Katz, the owner of Katz, Inc., is preparing a bid on a job that requires $1,200 of direct materials,$600 of direct labour, and $250 of overhead. Bob normally applies a standard mark-up based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors(e.g., competitive pressures). Last year's income statement is as follows:
Sales
$100,000
Cost of goods sold
45,000
Gross margin
55,000
Selling and administrative expenses
24,500
Net income
$ 30,500
Required:
1. Bill's standard mark-up is unchanged from last year. Calculate it asa percentage of sales.
2. What is Bob's initial bid price?