Question
In: Accounting
Total Cost Method of Product Pricing Smart Stream Inc. uses the total cost method of applying...
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 6,500 units of cell phones are as follows:
| Variable costs: | Fixed costs: | |||
| Direct materials | $ 72 | per unit | Factory overhead | $235,700 |
| Direct labor | 33 | Selling and administrative expenses | 82,800 | |
| Factory overhead | 22 | |||
| Selling and administrative expenses | 17 | |||
| Total variable cost per unit | $144 | per unit | ||
Smart Stream desires a profit equal to a 15% return on invested assets of $702,520.
a. Determine the total cost and the total cost amount per unit for the production and sale of 6,500 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
Solutions
Expert Solution
Answer :-
Given,
Smart streams desire 15% profit on its invested assets.
# Desired profit = 15% of $702,520 = $105,378.
(a) Computing total cost and total cost per unit.
Total cost = total variable cost + fixed cost.
Total variable cost per unit = $144, total units = 6,500. Total fixed cost = $82,800 + $235,700 = $318,500.
Total cost = $144*6500 + $318,500
Total cost = $936,000 + $318,500
Total cost = $12,54,000.
Total cost per unit = total cost ÷ number of units.
= $12,54,000 ÷ 6500
Total cost amount per unit= $192.92 per unit.
(b) computing total cost markup percentage:-
Mark up % = (selling price - cost price)÷cost
Total cost = $12,54,000 ; total desired profit = $105,378.
Total sale revenue = $12,54,000 + $105,378 = $13,59,378.
Sale price per unit = $13,59,378 ÷ 6500 = $209.135
Cost mark up = ($209.135 - $192.92)÷$192.92 = 8.40%.
# Cost mark up = 8.40%.
(C) Selling price = total cost + total desired profit.
= $12,54,000 + $105,378.
Total selling price = $13,59,378
Selling price per unit = $13,59,378 ÷ 6500 = $209.135.
--The End--
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