MA98 Problem: Pricing - Katz Inc.

MA98 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?