Question

Product Cost Method of Product Costing

Voice Com, Inc., uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 4,700 units of cell phones are as follows:

Variable costs:						Fixed costs:
	Direct materials		$74	per unit			Factory overhead	$200,400
	Direct labor		31				Selling and admin. exp.	69,000
	Factory overhead		25
	Selling and admin. exp.		21
		Total variable cost per unit	$151	per unit

Voice Com desires a profit equal to a 14% rate of return on invested assets of $599,500.

a. Determine the amount of desired profit from the production and sale of 4,700 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,700 of cell phones. If required, round your answer to nearest dollar.
$ per unit

c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.
%

d. Determine the selling price of cell phones. Round to the nearest dollar.

Cost	$per unit
Markup	$per unit
Selling price	$per unit

Answer 1

Total Unit produced is 4700 so multiply all the variable cost per unit with appropriate rate

Particulars	Per unit $	Amount in $
Sales (C+B)	226.17	$1,063,016
Direct Material	74	$347,800
Direct labour	31	$145,700
Factory overhead	25	$117,500
Selling and Admin cost	21	$98,700
Totat Variable cost (B)	151	$709,700
Contribution C= (E+D)		$353,316
Factory Overhead		$200,400
Selling and Admin exp		$69,000
Total Fixed Cost (D)		$269,400
Total Cost (B+D)	208.32	$979,100
Desired Profit see working note 1. ( E)		$83,916

Working note 1

a)Desired profit is 14% return on invested asset of $599,500 which is = $599,400*14% = $83,916

b) Product Cost per unit will be Total Cost divided by number of units produced. Hence ,

$979,100/4700 = $208.32 product cost per unit.

c) Markup on product cost = Sales price per unit - Product cost per unit = $226.14-$208.32 = 8.55% of markup.

Product cost per unit $208.32

d) Cost per unit = $208.32. Sales price per unit =$226.14. Markup per unit = $17.82 Refer the above table

All the figues are rounded of

Desired Profit formula = Contribution + Fixed Cost

Sales = Contribution + variable cost

Use all the above formulas it will surely help.