Product Cost Method of Product Pricing
La Femme Accessories Inc. produces women's handbags. The cost of producing 1,300 handbags is as follows:
Direct materials | $14,800 |
Direct labor | 7,000 |
Factory overhead | 6,200 |
Total manufacturing cost | $28,000 |
The selling and administrative expenses are $28,000. The management desires a profit equal to 15% of invested assets of $504,000.
If required, round your answers to nearest whole number.
a.
Determine the amount of desired profit from the production and sale
of 1,300 handbags.
$
b.
Determine the product cost per unit for the production of 1,300
handbags.
$per unit
c.
Determine the product cost markup percentage for handbags.
%
d. Determine the selling price of handbags. Round your answers to nearest whole value.
Cost | $per unit |
Markup | $per unit |
Selling price | $per unit |
a. | Desired profit = Desired profit rate * Invested assets = 15% * 504000 | 75600 | |
b. | Product cost per unit = Total manufacturing cost / Units produced = 28000 / 1300 | 22 | per unit |
c. | Product cost markup percentage = ( Desired profit + Selling and administrative expenses ) / Total manufacturing cost = ( 75600 + 28000 ) / 28000 | 370% |
d. | Cost | 22 | Per unit |
Markup ( 22 * 370% ) | 81 | Per unit | |
Selling price | 103 | Per unit i |
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