Question

Product Cost Method of Product Costing

Voice Com, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,320 cell phones are as follows:

Variable costs per unit:						Fixed costs:
	Direct materials		$76				Factory overhead	$199,000
	Direct labor		30				Selling and administrative expenses	69,100
	Factory overhead		22
	Selling and administrative expenses		18
		Total variable cost per unit	$146

Voice Com desires a profit equal to a 15% rate of return on invested assets of $601,500.

a. Determine the amount of desired profit from the production and sale of 5,320 cell phones.
$

b. Determine the product cost per unit for the production of 5,320 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

Answer 1

Based on the information available in the question, we can answer as follows:-

Requirement A:-

Amount of desired profit from the production and sale of 5,320 cell phones:-

Desired profit = Invested assets * Desired profit %

Desired profit = $601,500 * 15%

Desired Profit = $90,225

Requirement B:-

Product cost per unit:-

Particulars	Amount
Direct Materials	76
Direct Labor	30
Variable Factory Overheads	22
Fixed Factory overheads($199,000/5,320 cell phones)	37.41
Product Cost	165.41

Product cost per unit = $165(Rounded)

Requirement C:-

Particulars	Amount
Total Product cost($165.406*5,320)	879,960
Add:- Selling and administrative expenses
Variable ($18 per unit * 5,320 cell phones)	95,760
Fixed	69,100
Add:- Desired profit	90,225
Sales Value	1,135,045

Markup over product cost = $1,135,045 - $879,960 = $255,085

Markup percentage of product cost = $255,085/$879,960

=28.988%

Markup percentage of product cost = 28.99%

Requirement D:-

Total cost	165
Markup ($165 * 28.99%)	48
Selling Price	213

The answers have been rounded to the nearest dollar.

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