Galla Inc.needs to determine a price for a new product.Galla desires a 25% markup on the total cost of the product.Galla expects to sell 5,000 units.Additional information is as follows: $$\begin{array}{l}
\begin{array} { l l r }
\text { Variable product cost per unit}&\$15\
\text { Variable administrative cost per unit}&10\
\text { Total fixed overhead}&45,000\
\text { Total fixed administrative}&18,000
\end{array}
\end{array}$$ Using the total cost method what price should Galla charge?
A)$56
B)$47
C)$62
D)$30
E)$42

Question

Galla Inc.needs to determine a price for a new product.Galla desires a 25% markup on the total cost of the product.Galla expects to sell 5,000 units.Additional information is as follows: $$\begin{array}{l}
\begin{array} { l  l r } 
\text { Variable product cost per unit}&\$15\
\text { Variable administrative cost per unit}&10\
\text { Total fixed overhead}&45,000\
\text { Total fixed administrative}&18,000
\end{array}
\end{array}$$ Using the total cost method what price should Galla charge?
A)$56
B)$47
C)$62
D)$30
E)$42

Quizplus · Accepted Answer

First, calculate the total cost per unit, including both variable and fixed costs. Variable costs per unit are $15 (product cost) + $10 (administrative cost) = $25. The total variable cost for 5,000 units is $25 * 5,000 = $125,000. The total fixed costs are $45,000 (overhead) + $18,000 (administrative) = $63,000. The total cost is $125,000 (variable) + $63,000 (fixed) = $188,000. The cost per unit is $188,000 / 5,000 = $37.6. To achieve a 25% markup on total cost, the price should be $37.6 * 1.25 = $47.

Galla IncNeeds to Determine a Price for a New Product