Question

1.

Smart Stream Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 8,000 units of cellular phones are as follows:

Variable costs:			Fixed costs:
Direct materials	$ 87	per unit	Factory overhead	$349,300
Direct labor	40		Selling and admin. exp.	122,700
Factory overhead	26
Selling and admin. exp.	21
Total	$174	per unit

Smart Stream wants a profit equal to a 15% rate of return on invested assets of $1,018,990.

a. Determine the total costs and the total cost amount per unit for the production and sale of 8,000 units of cellular phones. Round the cost per unit to two decimal places.

Total costs	$__________
Cost amount per unit	$___________

b. Determine the total cost markup percentage (rounded to two decimal places) for cellular phones.
__________%

c. Determine the selling price of cellular phones. Round to the nearest cent.
$____________per phone

Answer 1

Answer :

a. Calculation of total cost and the total cost amount per unit :

Total cost = Fixed cost + Variable cost

= $349,300 + $122,700 + ($174 x 8,000 units )

= $349,300 + $122,700 + $1,392,000

= $1,864,000

Total cost amount per unit = Total cost / Units produced

= $1,864,000 / 8,000 units

= $233 per unit

b. Calculation of total cost markup percentage :

Markup required = $1,018,990 x 15%

= $152,848.50

Markup percentage = Markup required / Total cost x 100

= $152,848.50 / $1,864,000 x 100

= 8.2%

c. Calculation of selling price of cellular phones :

Selling Price = Total cost per unit + Markup

= $233 per unit + ($233 per unit x 8.2%)

= $233 per unit + $19 per unit

= $252 per unit