Kitchenware Corporation manufactures high-quality copper pots and pans. Greta Cooke, one of the company’s price analysts, is involved in setting a price for the company’s new Starter Set. This set consists of seven of the most commonly used pots and pans. During the next year, the company plans to produce 10,000 Starter Sets, and the controller has provided Cooke with the following cost data.

In addition, the controller indicated that the Accounting Department would allocate $20,000 of fixed administrative expenses to the Starter Set product line.
Required:
1. Compute the cost of a Starter Set using each of the four cost definitions commonly used in costplus pricing formulas.
2. Determine the markup percentage required for the Starter Set product line to earn a target operating income of $317,500 before taxes during the next year. Use the total cost as the cost definition in the cost-plus formula.

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Predicted Costs of 10,000 Starter Sets Direct material per set Direct labor per set, 2 hours at $10.00 per hr Variable selling cost per se........... Total Variable-overhead rate Fixed-overhead rate $60 20 5 $85 $ 8.00 per direct-labor hour $12.00 per direct-labor hour