Question
In: Accounting
MyPhone, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The...
MyPhone, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,380 cell phones are as follows:
| Variable costs per unit: | Fixed costs: | |||||||
| Direct materials | $64 | Factory overhead | $198,000 | |||||
| Direct labor | 31 | Selling and administrative expenses | 71,300 | |||||
| Factory overhead | 23 | |||||||
| Selling and administrative expenses | 21 | |||||||
| Total variable cost per unit | $139 | |||||||
MyPhone desires a profit equal to a 16% rate of return on invested assets of $600,700.
a. Determine the amount of desired profit from
the production and sale of 5,380 cell phones.
$
b. Determine the product cost per unit for the
production of 5,380 of cell phones. Round your answer to the
nearest whole dollar.
$ per unit
c. Determine the product cost markup percentage
for cell phones. Round your answer to two decimal places.
%
d. Determine the selling price of cell phones. Round your answers to the nearest whole dollar.
| Total Cost | $per unit |
| Markup | per unit |
| Selling price | $per unit |
Solutions
Expert Solution
Answer a.
The amount of desired profit from the production and sale of 5,380 cell phones = Invested assets * Rate of return
= $600,700 * 16 % = $96,112.
Answer b.
The product cost per unit for the production of 5,380 of cell phones
= Direct materials + Direct labor + Variable Factory overhead + (Fixed Factory overhead / 5,380 units)
= $64 + $31 + $23 + ($198,000 / 5,380 units) = $155.
Answer c.
Total product costs = [(Direct materials + Direct labor + Variable Factory overhead) * 5,380 units] + Fixed Factory overhead
= [($64 + $31 + $23) * 5,380 units] + $198,000
= $832,840.
| Total product costs | $832,840 |
| Add: Selling and administrative expenses | |
| Variable ($21 * 5,380 units) | $112,980 |
| Fixed | $71,300 |
| Add : Desired profit | $96,112 |
| Sales value | $1,113,232 |
Total markup over product costs = $1,113,232 - $832,840 = $280,392
The product cost markup percentage for cell phones = Total markup over product costs / Total product costs
= $280,392 / $832,840 = 33.67 %.
Answer d.
| Total Cost (product cost per unit ) | $155 per unit |
| Markup ($155 * 33.67%) | $52 per unit |
| Selling price | $207 per unit |
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