Question

Yelk Garage uses time and materials pricing. It is setting prices for next year using the following information: Labor rate, including fringe benefits $ 63 per hour Annual labor hours 3,100 hours Annual materials purchases $ 836,000 Materials purchasing, handling, and storage $ 41,800 Overhead for depreciation, taxes, insurance, etc. $ 77,500 Target profit margin for both labor and materials 25 % What should Yelk set as the materials markup per dollar of materials used

Answer 1

30%

Step-by-step explanation:

Material purchasing, handling and storage cost = $ 41,800

Material purchasing percentage:

= Material purchasing, handling and storage cost ÷ Annual materials purchases

= ($41,800 ÷ $836,000 ) × 100

= 5%

Target profit margin for both labor and materials = 25%

Material markup per dollar of material:

= Material purchasing percentage + Target profit margin

= 5% + 25%

= 30%