Product Cost Concept of Product Costing
MyPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 cellular phones are as follows:
Variable costs: | Fixed costs: | |||||||
Direct materials | $89 | per unit | Factory overhead | $199,600 | ||||
Direct labor | 37 | Selling and administrative expenses | 70,000 | |||||
Factory overhead | 24 | |||||||
Selling and administrative expenses | 23 | |||||||
Total | $173 | per unit |
MyPhone wants a profit equal to a 15% rate of return on invested assets of $601,400.
a. Determine the amount of desired profit from
the production and sale of 5,000 cellular phones.
$
b. Determine the product cost and the cost
amount per unit for the production of 5,000 cellular phones. If
required, round your answer to nearest dollar.
$ per unit
c. Determine the product cost markup percentage
(rounded to two decimal places) for cellular phones.
%
d. Determine the selling price of cellular phones. Round to the nearest dollar.
Cost | $ | per unit |
Markup | ||
Selling price | $ | per unit |
Solution a:
Desired profit = Invested assets *15% = $601400 *15% = $90,210
Solution b:
Total product Cost = Variable + Fixed = [5000*($89+$37+$24)] + $199600 = $750,000 = $949,600
Cost per unit = $949600 / 5000 = $189.92 per unit = 190 per unit
Solution c:
Total markup = Desired profit + Selling and administrative expense = $90210 + (5000*$23 + $70000) = $275,210
Markup percentage = Total markup / Total product cost = $275,210 / $949,600 = 28.98%
Solution d:
Cost = $190
Markup = 190 *28.98% = $55
Selling price = $190 + $55 = $245
Product Cost Concept of Product Costing MyPhone Inc. uses the product cost concept of applying the...
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