Question
In: Accounting
Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing. The...
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 |
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
I'm having trouble with C.
Solutions
Expert Solution
Answer-a)- The amount of desired profit from the production and sale of Product K= $128500.
Explanation- Desired profit = Invested assets*Desired rate of return
= $1285000*10%
= $128500
b)- Total manufacturing costs = (Direct materials+ Direct labor+ Factory overhead+ Selling & administrative expenses)* No. of units
= ($5+$8.50+$2.50+$1)*50000 units
=$850000
Cost amount per unit = $850000/50000 units
= $17 per unit
c)- Mark-up percentage for product K= 13.76%,
Explanation- Fixed cost per unit =( Fixed manufacturing overhead + Fixed selling and administrative expenses)/Total budgeted volume
= $50000+$34000)/50000 units
= $1.68 per unit
Return on investment per unit = $128500/50000 units
= $2.57 per unit
Total unit costs =Variable cost per unit+ Fixed cost per unit
= $17+$1.68
= $18.68 per unit
Mark-up percentage = (Desired ROI/Total units cost)*100
= ($2.57/18.68)*100
= 13.76%
d)- Selling price of Product K= $21.25 per unit
Explanation- Selling price of Product K = Total units costs+ Mark-up percentage
= $18.68+ ($18.68*13.76%)
= $18.68+$2.57
= $21.25 per unit
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