Question

Total Cost Concept of Product Costing Willis Products Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 8,000 units of medical tablets are as follows: Variable costs per unit: Fixed costs: Direct materials $94 $256,000 Factory overhead Selling and admin. exp Direct labor 34 88,000 Factory overhead 29 Selling and admin. exp. 23 $180 Total Willis Products desires a profit equal to a 25% rate of return on invested assets of $578,016. a. Determine the amount of desired profit from the production and sale of 8,000 units. $

Answer 1

a)

Desire profit = Total Investment * Rate of Return

= $578,016*25/100

= $144,504

Therefore, the desired profit is $144,504.

b)

Variable Costs ($180 * 8,000 units)	$1,440,000
Fixed Costs ($256,000 + $88,000)	$344,000
Total Cost ($1,440,000 + $344,000)	$1,784,000

Cost amount per unit = Total Cost / Number of Units

= $1,784,000 / 8,000 units

= $223 per unit

Therefore, cost per unit is $223.

c)

Markup per unit ($144,504/8,000 units)	$18.06
Total Cost per unit	$223
Total cost markup percentage ($18.06/$223*100)	8.1%

Therefore, cost markup percentage is 8.1%.

d)

Selling price per unit = Total cost per unit + Markup per unit or Profit per unit

= $223 per unit + $18.06 per unit

= $241.06 per unit

Therefore, selling price per unit is $241.06.