Question

Smart Stream Inc. produces and sells cell phones. The costs of producing and selling 9,000 units of cell phones are as follows: Variable costs: Fixed costs: Direct materials $ 90 per unit Factory overhead $517,500 Direct labor 41 Selling and admin. exp. 181,800 Factory overhead 27 Selling and admin. exp. 22 Total variable cost per unit $180 per unit Smart Stream Inc. desires a profit equal to a 15% rate of return on invested assets of $630,000. Assume that Smart Stream Inc. uses the variable cost method of applying the cost-plus approach to product pricing. a. Determine the variable costs and the variable cost amount per unit for the production and sale of 9,000 units of cellular phones. Total variable cost $ Variable cost amount per unit $ b. Determine the variable cost markup percentage for cellular phones. % c. Determine the selling price of cellular phones. Round to the nearest cent. $ per cellular phone

Answer 1

0SOLUTION

A.

Particulars	Amount ($)
Direct materials ($90*9,000)	810,000
Direct labor ($41*9,000)	369,000
Factory overhead ($27*9,000)	243,000
Selling and administrative expenses ($22*9,000)	198,000
Total variable costs	1,620,000
Number of units	9,000
Variable cost per unit	$180

B.

Particulars	Amount ($)
Desired profit (630,000*15%)	94,500
Add: Total fixed expenses (517,500+181,800)	699,300
Desired contribution (a)	793,800
Total variable costs (b)	1,620,000
Variable cost markup percentage (a/b*100)	49%

C.

Particulars	Amount ($)
Variable cost per unit	180
Add: Markup per unit (180*49%)	88.20
Selling price per unit	268.20