Question

Product Cost Concept of Product Pricing

Mademoiselle Company produces women's handbags. The cost of producing 1,180 handbags is as follows:

Direct materials	$14,000
Direct labor	8,200
Factory overhead	6,500
Total manufacturing cost	$28,700

The selling and administrative expenses are $26,300. The management desires a profit equal to 15% of invested assets of $503,000.

If required, round your answers to nearest whole number.

a. Determine the amount of desired profit from the production and sale of 1,180 handbags.
$

b. Determine the product cost per unit for the production of 1,180 handbags.
$per unit

c. Determine the product cost markup percentage for handbags.
%

d. Determine the selling price of handbags. Round your answers to nearest whole value.

Cost	$per unit
Markup	$per unit
Selling price	$per unit

Answer 1

A. Determination the amount of desired profit from the production and sale of 1,180 handbags
Invested assets	503000
Desired Profit percentage	15%
Desired Profit (503000*15%)	75450

B. Determination the product cost per unit for the production of 1,180 handbags.
Total manufacturing cost	28700
Number of handbags	1180
Product cost per unit (28700/1180)	24

C. Determination the product cost markup percentage for handbags.

Profit = Sales - Manufacturing costs - selling and administrative expenses

75450 = x*1180 - 28700 - 26300

75450+26300+28700 = X*1180

130450 = X*1180

X=130450/1180

X = 110.551 or 111

Selling Price = Product cost *(1+Markup)

110.551 = 24.32203*(1+markup)

110.551/24.32203 = (1 + Markup)

4.545296 = 1 + Markup

Markup = 4.545296 -1

Markup = 3.545296 or 355%

D. Determination of the selling price of handbags
Cost	24
Markup	355%
Selling Price (24.32203*(1+355%))	111