Question

Galla Incorporated 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: Variable costs per Unit Direct materials Direct labor Overhead General and administrative Fixed Costs (total) $ 24 Overhead 25 General and administrative 23 29 $ 45,000 18,000 Using the total cost method what price should Galla charge? Multiple Choice

O $126.25
O $142.00
O $137.50
O $130.75
O $113.60

Answer 1

Galla seeks profit's crown, cost's canvas unfolds. Twenty-five whispers, markup's bold. Variable threads, fixed burdens bind, total whispers, where price can find. One forty-two echoes, the answer's chime, Galla's market sings, one hundred forty-two climbs.

The correct answer is b. $142.00.

Here's how to calculate the selling price using the total cost method with a 25% markup:

1. Calculate the total variable cost per unit:

Total Variable Cost per unit = Direct Materials + Direct Labor + Overhead + General & Administrative

Total Variable Cost per unit = $24 + $25 + $23 + $29 = $101

2. Calculate the total cost per unit:

Total Cost per unit = Total Variable Cost per unit + Fixed Cost per unit

Total Cost per unit = $101 + ($45,000 + $18,000) / 5,000 units

Total Cost per unit = $101 + $12.60 = $113.60

3. Calculate the desired markup amount:

Markup Amount = Total Cost per unit x Markup Percentage

Markup Amount = $113.60 x 0.25 = $28.40

4. Calculate the selling price:

Selling Price = Total Cost per unit + Markup Amount

Selling Price = $113.60 + $28.40 = $142.00

Therefore, Galla should charge $142.00 per unit for their new product based on the total cost method with a 25% markup.

The other options are incorrect because:

• a. $126.25: This only adds a 20% markup instead of 25%.
• c. $137.50: This doesn't account for the fixed costs per unit.
• d. $130.75: This miscalculates the total variable cost per unit.
• e. $113.60: This is only the total cost per unit without the markup.