Question

Rios Co. makes drones and uses the variable cost approach in setting product prices. Its costs...

Rios Co. makes drones and uses the variable cost approach in setting product prices. Its costs for producing 23,000 units follow. The company targets a profit of $303,000 on this product.

Variable Costs per Unit Fixed Costs
Direct materials $ 73 Overhead $ 673,000
Direct labor 43 Selling 308,000
Overhead 28 Administrative 288,000
Selling 18


1. Compute the variable cost per unit.
2. Compute the markup percentage on variable cost.
3. Compute the product’s selling price using the variable cost method.

Business   Accounting   
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Homework Answers

Answer #1

Answer 1:

Variable cost = $ 162 per unit

Explanation:

Variable cost per unit = Material + Labor + Overheads + Selling

= 73 + 43 + 28 + 18

= $ 162 per unit

Answer 2:

Markup percentage = 42.19%

Explanation:

Markup percentage = [Fixed costs + target profit] / variable costs

= [(673,000 + 308,000 + 288,000) + 303,000] / (23,000 * 162)

= 1,572,000 / 3,726,000

= 42.19%

Answer 3:

Selling price = $ 230.35

Calculation:

Selling price = 162 * 142.19%

= $ 230.35

In case of any doubt, please feel free to comment.

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