Cost-Based Pricing Decision

Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,890 of direct labor, and $1,350 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last years income statement is as follows:

Sales		$136,500
Cost of goods sold		91,455
	Gross margin	$45,045
Selling and administrative expenses		46,300
	Operating income	$-1,255

Required:

1. Calculate the markup that Jeremy will use. %

2. What is Jeremy's initial bid price? $