Question

Total Cost Method of Product Pricing

Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 6,000 units of cell phones are as follows:

Variable costs:			Fixed costs:
Direct materials	$ 89	per unit	Factory overhead	$270,800
Direct labor	41		Selling and administrative expenses	95,200
Factory overhead	27
Selling and administrative expenses	21
Total variable cost per unit	$178	per unit

Smart Stream desires a profit equal to a 14% return on invested assets of $798,940.

a. Determine the total cost and the total cost amount per unit for the production and sale of 6,000 units of cellular phones. Round the cost per unit to two decimal places.

Total cost	$
Total cost amount per unit	$

b. Determine the total cost markup percentage (rounded to two decimal places) for cellular phones.
%

c. Determine the selling price of cellular phones. Round to the nearest cent.
$ per cellular phone

Answer 1

a
Total variable cost	1068000	=178*6000
Total Fixed cost	366000	=270800+95200
Total cost	1434000
Total cost amount per unit	239	=1434000/6000
b
Required markup	111851.6	=798940*14%
Divide by Total cost	1434000
Total cost markup percentage	7.80%
c
Total cost amount per unit	239.00
Add: Markup per unit	18.64	=239*7.8%
Selling price	257.64	per cellular phone