Variable Cost Method of Product Pricing Smart Stream Inc. produces and sells cell phones. The costs...
Variable Cost Method of Product Pricing
Smart Stream Inc. produces and sells cell phones. The costs of producing and selling 4,000 units of cell phones are as follows:
| Variable costs: | Fixed costs: | |||
| Direct materials | $ 60 | per unit | Factory overhead | $99,000 |
| Direct labor | 28 | Selling and admin. exp. | 34,800 | |
| Factory overhead | 18 | |||
| Selling and admin. exp. | 14 | |||
| Total variable cost per unit | $120 | per unit | ||
Smart Stream Inc. desires a profit equal to a 15% rate of return on invested assets of $420,000.
Assume that Smart Stream Inc. uses the variable cost method of applying the cost-plus approach to product pricing.
a. Determine the variable costs and the variable cost amount per unit for the production and sale of 4,000 units of cellular phones.
| Total variable cost | $ |
| Variable cost amount per unit | $ |
b. Determine the variable cost markup
percentage for cellular phones.
%
c. Determine the selling price of cellular
phones. Round to the nearest cent.
$ per cellular phone
Homework Answers
| a | ||
| Total variable cost | 480000 | =120*4000 |
| Variable cost amount per unit | 120 | |
| b | ||
| Required markup | 196800 | =(420000*15%)+99000+34800 |
| Divide by Total variable cost | 480000 | |
| Variable cost markup percentage | 41.00% | |
| c | ||
| Variable cost amount per unit | 120.00 | |
| Add: Markup per unit | 49.20 | =120*41% |
| Selling price | 169.20 | per cellular phone |
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