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Product Cost Concept of Product Costing MyPhone Inc. uses the product cost concept of applying the...

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
0 0
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Answer #1

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

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