Question
In: Accounting
Voice Com, Inc., uses the product cost method of applying the cost-plus approach to product pricing....
Voice Com, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,010 units of cell phones are as follows:
| Variable costs: | Fixed costs: | |||||||
| Direct materials | $62 | per unit | Factory overhead | $200,200 | ||||
| Direct labor | 38 | Selling and admin. exp. | 69,900 | |||||
| Factory overhead | 26 | |||||||
| Selling and admin. exp. | 20 | |||||||
| Total variable cost per unit | $146 | per unit | ||||||
Voice Com desires a profit equal to a 16% rate of return on invested assets of $599,000.
a. Determine the amount of desired profit from
the production and sale of 5,010 units of cell phones.
$fill in the blank 1
b. Determine the product cost per unit for the
production of 5,010 of cell phones. If required, round your answer
to nearest dollar.
$fill in the blank 2 per unit
c. Determine the product cost markup percentage
(rounded to two decimal places) for cell phones.
fill in the blank 3 %
d. Determine the selling price of cell phones. Round to the nearest dollar.
| Total Cost | $fill in the blank 4per unit |
| Markup | fill in the blank 5per unit |
| Selling price | $fill in the blank 6per unit |
Solutions
Expert Solution
a)
Amount of desired profit = rate of return on investment x invested assets = 16% x $599,000 = $95,840
b)
Direct Material = $ 62
+Direct Labour = $ 38
+Variable Factory Overhead = $ 26
+Fixed Factory Overhead = $ 40
( 200,200/5,010 = 40 )
Product cost per unit = $166
c) Calculation of Product Cost Markup % :
Total Product Cost = 5010 x 166 = $831,660
+Total Variable Selling and Admin expenses = 20 x 5,010 = $100,200
+Total Fixed Selling and Admin expenses = $ 69,900
+Desired Profit = $ 95,840
Sales =$1,097,600
Total Markup over Product Cost = $1,097,600 - $831,660 = $265,940
Product Cost Markup % = Markup over Product Cost/Total Product Cost = 265,940/831,660 = 0.31977 = 31.98%
Note:
You can also find Product Cost Markup % by adding Total Variable Selling and Admin Expenses, Total Fixed Selling and Admin Expenses, and Desired Profit and dividing the result with Total Product Cost
d) Product Cost per unit = $166.00
+Markup = 31.98% x 166 = $ 53.00 (approx)
Selling Price = $219.00
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