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: 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:  Using the total cost method what price should Galla charge?
A) $56 
B) $47 
C) $62 
D) $30 
E) $42

Quizplus · Accepted Answer

Total costs = Product costs + Administrative costs
($15 × 5,000) + $45,000 + ($10 × 5,000) + 18,000 = $188,000
Total cost per unit = Total costs/Total units expected to be sold
$188,000 / 5,000 = $37.60
Mark-up per unit = Total cost per unit × Markup percentage
$37.60 × 25% = $9.40
Selling price per unit = Total cost per unit + Markup per unit
$37.60 + $9.40 = $47

Galla Inc Needs to Determine a Price for a New Product