Question

Largo, Inc., which uses a volume-based cost system, produces cat condos, and has a gross profit margin of 66%. Direct materials cost $21 per unit, and direct labor costs $18 per unit. Manufacturing overhead is applied at a rate of 150% of direct labor cost. Nonmanufacturing costs are $34 per unit. How much does each cat condo sell for?

$248

$194

$176

$154

Answer 1

Answer is option 2

$194

Gross profit per unit = selling price per unit - cost of goods sold per unit

Cost of goods sold per unit = Direct materials cost per unit + direct labor costs per unit + Manufacturing overhead per unit = 21 + 18 + (150%*18) = 66

Gross profit margin = (selling price per unit - cost of goods sold)/selling price per unit

0.66 = (selling price per unit - 66) / selling price per unit

0.66 selling price per unit = selling price unit - 66

0.34 selling price unit = 66

Selling price per unit = 66/0.34 = $194