Question

Product Cost Method of Product Pricing La Femme Accessories Inc. produces women's handbags. The cost of producing 1,220 handbags is as follows: Direct materials $15,600 Direct labor 8,100 6,000 Factory overhead Total manufacturing cost $29,700 The selling and administrative expenses are $28,100. The management desires a profit equal to 14% of invested assets of $504,000. If required, round your answers to nearest whole number. a. Determine the amount of desired profit from the production and sale of 1,220 handbags b. Determine the product cost per unit for the production of 1,220 handbags. per unit c. Determine the product cost markup percentage for handbags 9% d. Determine the selling price of handbags. Round your answers to nearest whole value. Cost Markup $ per unit per unit per unit Selling price

Answer 1

Product cost method of product pricing:

a)
Desired profit for sale of 1,220 handbags ($504,000*14/100)	$70,560
b)
Production cost per unit ($29,700/1,220 handbags)	$24.34
c)
Total manufacturing cost	$29,100
Add: Desired Profit	$70,560
Total Sales Value excluding selling and administrative expenses	$99,660
Product cost markup percentage ($70,560/$99,660*100)	71%
d)
Total manufacturing cost	$29,700
Add: Selling and administration expenses	$28,100
Total Cost	$57,800
Cost per unit ($57,800/1,220 handbags)	$47.38
Markup per unit ($70,560/1,220 handbags)	$57.84

Total manufacturing cost	$29,700
Add: Selling and administration expenses	$28,100
Add: Desired profit	$70,560
Total Sales Value	$128,360
Selling Price per unit ($128,360/1,220 handbags)	$105.21

Variable cost method of product costing:

a)
Total Variable Costs ($170 per unit * 8,000 units)	$1,360,000
Variable cost amount per unit	$170
b)
Total Variable Costs	$1,360,000
Add: Markup ($595,000*15/100)	$89,250
Total Sales excluding fixed costs	$1,449,250
Variable cost markup percentage ($1,360,000/$1,449,250*100)	94%
c)
Variable cost per unit	$170
Add: Fixed cost per unit ($447,200 + $157,150 = $604,350/8,000 units)	$75.50
Add: Mark up cost per unit ($89,250/8,000 units)	$11.10
Selling Price per unit	$257