Question

1. Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing. The cost and expenses of producing and selling 50,000 units of Product K are as follows:

Variable costs: Direct materials $5.00

Direct labor 8.50

Factory overhead 2.50

Selling and administrative expenses 1.00

Total $17.00

Fixed costs: Factory overhead $50,000

Selling and administrative expenses 34,000

2. Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.

a. Determine the amount of desired profit from the production and sale of Product K. $128,500

b. Determine the total manufacturing costs and the cost amount per unit for the production and sale of 50,000 units of Product K.

Total manufacturing costs $850,000

Cost amount per unit $17

c. Determine the markup percentage for Product K. %

d. Determine the selling price of Product K. Round your answer to two decimal places. $21.25.

Can you assist with C - Determine the markup percentage for Product K?

Answer 1

Answer- a)- The amount of desired profit from production and sale of 50000 units = Invested assets * Target rate of return

= $1285000*10%

= $128500

b)- Total manufacturing costs for production of 50000 units =$850000.

Explanation – Total costs= Variable costs + Fixed costs

=$800000+$50000

= $850000

Where- Variable manufacturing costs = 50000 units*$16 per unit

= $800000

Fixed costs = $50000

= $50000

Total cost amount per unit for the production and sale of 50000 units = Total costs/ Total no. of units

= $850000/50000 units

= $17 per unit

c)- Total cost mark-up percentage = (Desired profit/Total costs)*100

= ($128500/$934000)*100

= 13.76%

Total costs = (50000 units*$17 per unit)+$84000

= $934000

d)- Selling price per unit = (Total costs+ Desired profit)/Total no. of units

= ($934000+$128500)/50000 units

= $1062500/50000 units

= $21.25 per unit