Question

Variable Cost Method of Product Pricing Smart Stream Inc. uses the variable cost method of applying...

Variable Cost Method of Product Pricing

Smart Stream Inc. uses the variable cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cell phones are as follows:

Variable costs per unit: Fixed costs:
Direct materials $150 Factory overhead $350,000
Direct labor 25 Selling and admin. exp. 140,000
Factory overhead 40
Selling and administrative expenses 25
Total variable cost per unit $240

Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000.

a. Determine the variable costs and the variable cost amount per unit for the production and sale of 10,000 cellular phones.

Total variable costs $
Variable cost amount per unit $

b. Determine the variable cost markup percentage for cellular phones. Round to two decimal places.
%

c. Determine the selling price of cellular phones. If required, round to the nearest dollar.
$ per cellular phone

Homework Answers

Answer #1
  • Requirements

a

Total Variable costs [10000 units x 240]

$2,400,000

Variable cost amount per unit

$240

b

Markup percentage

35.42%

c

Selling price per phone

$325.01 or $ 325

  • Workings

Total Variable costs [10000 units x 240]

$2,400,000

Variable cost amount per unit

$240

Fixed Cost [350000+140000]

$490,000

Desired amount of profits [1200000 x 30%]

$360,000

A

Total markup

$850,000

B

Total Variable costs [10000 units x 240]

$2,400,000

C = (A/B) x 100

Markup percentage

35.42%

A

Variable cost amount per unit

$240.000

B

Markup percentage

35.42%

C = A x B

Markup amount per unit

$85.01

D = A+C

Selling price per phone

$325.01

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