Posted: July 9th, 2016

What would be the price for a product that has a cost of $500, assuming that the markup is based on cost of goods sold?

10. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials $150,000
Direct labor 240,000
Variable manufacturing overhead 90,000
Fixed manufacturing overhead 120,000
Total $600,000

An outside supplier has offered to sell the component for $25.50.

Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.

What is the effect on income if Foster purchases the component from the outside supplier?
a. $45,000 increase
b. $15,000 increase
c. $75,000 decrease
d. $105,000 increase

11. Jamie Corporation had the following information:

Revenues $250,000
Cost of goods sold:
Direct materials $50,000
Direct labor 37,500
Overhead 62,500 150,000
Gross profit $100,000
Selling and administrative expenses 37,500
Operating income $ 62,500

What would be the price for a product that has a cost of $500, assuming that the markup is based on cost of goods sold?
a. $834
b. $625
c. $708
d. $2,000

12. Gage Company had the following information:
Revenues $600,000
Cost of Goods Sold 60%
Selling and administrative expenses $130,000
What is the markup on Cost of Goods sold?
a. .1833
b. .6667
c. .3611
d. none of these

ANS: B
Support:
Cost of Goods Sold = .60 ? $600,000 = $360,000
Operating Income = $600,000 – $360,000 – $130,000 = $110,000
Markup on COGS = (selling and administrative expenses + operating income) / COGS
.6667 = ($130,000 + $110,000) / $360,000

PTS: 1 DIF: Difficult OBJ: 18-2 NAT: AACSB Analytic

13. Perry Products is thinking of expanding their product line. Their current income statement is as follows:
Revenues $600,000
Cost of Goods Sold:
Direct Materials $250,000
Direct Labor 100,000
Overhead 80,000 430,000
Gross Profit 170,000
Selling and Administrative 70,000
Operating Income $100,000

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