Privacy Window and Wall Treatments Company provides draperies, shades, and various window treatments. Privacy works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Privacy’s income statement for last year is as follows:

Privacy wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year.

Required:

1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round the percentage to two significant digits.)

2. A customer orders draperies and shades for a remodeling job. The job will have the following costs:

What is the price that Privacy will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.)

3. What if Privacy wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round the percentage to two significant digits.) What is the bid price Privacy will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)

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Revenues Cost of goods sold: Direct materials Direct labor Overhead Gross profit Selling and administrative expenses Operating income $350,000 200,000 250,000 $1,000,000 800,000 $ 200,000 150,000 50,000 $