In: Accounting
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.
$ 83930
b. Determine the product cost per unit for the
production of 4,700 of cell phones. If required, round your answer
to nearest dollar.
$ 173 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 | $173 per unit |
Markup | $per unit |
Selling price | $per unit |
1 | the amount of desired profit from the production and sale of 4,700 units of cell phones. | |||||
DesiredProfit= Cost of ivetsed asset*4% | ||||||
=599500*.14 | ||||||
=$83930 | ||||||
Desired Profit p.u = $83930/4700 | ||||||
17.86 | ||||||
2 | Total Cost | |||||
Total VariableCost p.u | 151.00 | |||||
FxedCost p.u | 14.68 | (200400+69000)/4700uniits | ||||
165.68 | ||||||
Cost per unit = | $166 p.u | |||||
3 | Determine the product cost markup percentage (rounded to two decimal places) for cell phones | |||||
$ p.u | ||||||
Cost per unit = | $166 | |||||
Desired Profit = | $17.86 | |||||
Mark up on Cost = Profit/Cost | 10.76% | |||||
(17.86/166*100) | ||||||
4 | Determine the selling price of cell phones. | |||||
Cost per unit = | $166 | |||||
Desired Profit = | $17.86 | |||||
Estimated Selling Price | $183.86 | |||||