Question

Product Cost Method of Product Costing Voice Com, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,420 units of cell phones are as follows: Variable costs: Fixed costs Direct materials $73 per unit Factory overhead $199,100 Direct labor Selling and admin. exp. 69,200 Factory overhead Selling and admin. exp. 18 Total variable cost per unit $146 per unit Voice Com desires a profit equal to a 13% rate of return on invested assets of $601,500 a. Determine the amount of desired profit from the production and sale of 5.420 units of cell phones. $ 78,195 ✓ b. Determine the product cost per unit for the production of 5.420 of cell phones. If required, round your answer to nearest dollar 165 per unit c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones 8.73 X % d. Determine the selling price of cell phones, Round to the nearest dollar Total Cost 165 per unit Markup per unit Selling price per unit

Answer 1

Solution Direct Material cost Direct labor Variable Factory overhead Fixed Factory overhead ($199,100 / 5,420) Total product cost Variable Selling and administration expense Fixed Selling and administration expense ($69,200/5,420) Total cost of sales Per unit $73.00 $30.00 $25.00 $36.73 $164.73 $18.00 $12.77 $195.502 Total $395,660 $162,600 $135,500 $199,100 $892,860 $97,560 $69,200 $1,059,620 Requirement a.: Determine the desired profit from the production and sale of 5,420 units Invested assets Desired profit on invested assets $601,500 13% Desired profit = $601,500 x 13% = $78,195 Requirement b.: Determine the product cost per unit for the production of 5,420 units Product cost Direct Material cost Direct labor Variable factory overheads Fixed factory overheads Product cost per unit Per unit $73.00 $30.00 $25.00 $36.73 $164.73 Product cost per unit (R/o to nearest dollar) $165 Product cost $165 Requirement c.: Determine the product cost markup percentage $892,860 Total Product cost Add: Selling and administration cost Variable ($18 x 5,420) Fixed Add: Desired profit Sales value $97,560 $69,200 $78,195 $1,137,815 Total markup over product cost = $1,137,815 - $892,860 = $244,955 Markup percentage over product cost = $244,955/$892,860 = 27.43% Product cost markup percentage 27.43% Requirement d.: Determine the selling price of cell phone. Total cost Markup ($165 x 27.43%) Selling price $165 $45 $210 per unit per unit per unit