Question
In: Accounting
DC's has been approached by a large grocery store chain that wants to sell their award...
DC's has been approached by a large grocery store chain that wants to sell their award winning BBQ sauce. Determine the selling price based on the following information:
Fixed costs for production will be $400,000 of which $150,000 is for selling and admin expenses.
Variable costs will be $15 per case. Variable selling expenses are $3 per case.
Anticipated sales are 100,000 cases.
DC's desires a $350,000 profit.
What does the selling price per case need to be?
After visiting with customers of the DC's restaurant, the grocery chain also wants to produce DC's Dry Seasoning Rub.
Determine the selling price for the Rub based on the following combined information:
| Variable Costs | Fixed Costs | |
|---|---|---|
| Manufacturing | 2,700,000 | 300,000 |
| Selling and Administrative | 450,000 | 200,000 |
| Total | 3,150,000 | 500,000 |
Desired profit from Rub sales = $150,000
The Cost for 1 case of Rub is:
| Direct Materials | $ 9 |
| Direct Labor | $ 7 |
Manufacturing Overhead:
| Variable | $ 3 |
| Fixed | $ 2 |
| Total Manufacturing Costs | $ 21 |
| Variable Selling and Admin | $ 3 |
Required:
1. Determine the markup percentage on variable costs required to earn the desired profit.
2. Use the variable markup percentage to determine the suggested price of the Rub.
3. Determine the markup percentage on manufacturing costs to earn the desired percentage
4. Determine the suggested price of the Rub using manufacturing cost markup.
Solutions
Expert Solution
1.
| markup percentage on variable cost | |
| Desired Profit | $ 1,50,000.00 |
| Add: Fixed Cost | $ 5,00,000.00 |
| Required Markup | $ 6,50,000.00 |
| Variable Cost | $ 31,50,000.00 |
| Mark Up % (650000/3150000) | 20.63% |
2.
| Variable cost per unit (9+7+3+3) | $ 22.00 |
| Mark up (22*20.63%) | $ 4.54 |
| Selling price per unit | $ 26.54 |
3.
| Markup percentage on Manufacuring cost | |
| Desired Profit | $ 1,50,000.00 |
|
Add: selling and administrative
cost (450000+200000) |
$ 6,50,000.00 |
| Required Markup | $ 8,00,000.00 |
| Manufacturing cost (2700000+300000) | $ 30,00,000.00 |
| Mark Up % (800000/3000000) | 26.67% |
4.
|
Manufacturing cost per unit (9+7+3+2) |
$ 21.00 |
| Mark up (21*26.67%) | $ 5.60 |
| Selling price per unit | $ 26.60 |
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